Iran is an attractive market for textile companies, garment producers and machinery manufacturers. But the red tape that ties down industry is difficult to cut through. The lethargy created by the decades of international isolation and government control would not be easy to shake off, reports Jozef De Coster from Tehran.
As unbelievably charming and helpful the Iranian people are, as unbelievably bureaucratic and inefficient is the Iranian economy. Polite observers describe Iran mercifully as a country in transition to a market economy. The state controls as much as 70 per cent of the economy. This doesn't apply to the Iranian apparel industry (totally privatised) and textile industry (almost privatised). But how blessed would private owners of the textiles and apparel companies feel, and their suppliers too, if by miracle the burdensome Iranian administration suddenly would be replaced by blockchain.
Aftermath of international sanctions
It's not the task of textile magazines to criticise the political, financial or macro-economic choices of countries which produce/export/import textiles. But it makes sense to show the business partners of such countries as well the pitfalls of the business opportunities.
Business people are supposed to know that Iran has a long history of international sanctions. Since 1979, the United States has led international efforts to use sanctions to influence Iran's policies. In April 2015, the 5 1 (the 5 permanent members of the UN Security Council Germany) reached a provisional agreement with Iran on a framework that, once finalised and implemented, would lift most of the sanctions in exchange for limits on Iran's nuclear programmes extending for at least ten years. As a result, UN sanctions were lifted in January 2016. However, exporters to Iran should keep in mind that unpredictability is one of the characteristics of the current American presidency.
By the way, it's no wonder that the Iranian government is cautious in its relations with the US. Declassified documents released in June 2017 shed light on the CIA's central role in the 1953 coup that brought down Prime Minister Muhammad Mossadegh. This coup fuelled a surge of nationalism which culminated in the 1979 Iranian Revolution, and poisoned US-Iran relations till today.
Continuing payment problems
In spite of the lifting of UN sanctions, the transfer of money from Iran to other countries is still a problem. Foreign exhibitors at the trade fair Irantex (Tehran, September 4, 2017) explained how they solve it. According to Ravindra Kumar, joint director of the Indian Cotton Textiles Export Promotion Council (Texprocil), Iranian companies are not allowed to pay in US dollars; so, they pay in Indian rupees. Only two banks in India are authorised to handle these payments. Indian textiles exporters don't take any risk; they only accept to export to Iran under an LOC (letter of credit).
Also, Chinese companies have problems in getting payments from customers in Iran. But they too have found a solution using financial intermediaries in Dubai who are connected with intermediaries in Hong Kong. The sales manager of Changxin Dongxin Textile Co says that Chinese exporters have a supplementary problem: We have a big image problem. In the eyes of Iranians, Chinese products are always cheap. So, even when we
offer the Iranians flame-retardant, water-proof or anti-static fabrics, they want them very cheap.
Matthias Knecht, area sales manager of the German producer of flat-knitting machines Stoll, says that things are moving. He regrets, however, that the situation is not yet clear. Companies still have rules to follow for the transfer of Iranian money to Europe. Because of their interests in the US, big German banks like Deutsche Bank and Commerzbank can't afford working with Iran. Fortunately, some smaller banks can.
Mauro Badanelli, economic advisor at the Association of Italian Textile Machinery Manufacturers (Acimit), recollects that in the years before the sanctions, Italy annually exported 30-40 million textile machinery to Iran. Although Iranian customers appreciate Italian machines and are eager to invest, it's hard to restore the same level of business, partly due to money transfer issues.
Moreover, Boris Abadjieff, export marketer at the German textile machinery association VDMA, regrets that there are still pending decisions about the lifting of sanctions. He says that VDMA continued to pay full attention to Iranian customers during the period of the sanctions. An example: in April 2015, German machinery constructors organised a conference which attracted 1,100 visitors from Iran. Today, exports of German textile machines are in full swing. Some small German banks take care of the financial procedure. Abadjieff says: The German exporters accept that Iran is a somewhat more complicated market than other ones.
Import taxes and illegal imports
It's estimated that Iran's textiles and apparel market is worth $16 billion. Only 40 per cent of this comes from domestic sources. The rest is met through imports. However, India and other textile-exporting countries have in the past been largely absent in the Iranian market, due to the extremely high import taxes introduced by the Iranian government. These taxes amounted up to 200 per cent on apparel and textiles, but have been brought down to 55 per cent and 32 per cent respectively. The government wants to reduce these in the near future to 2025 per cent or even less.
K Banijamali, CEO of the Tehran-based import-export company Mobtakeran Sefaresh Kala, says that the customs in Iran work slowly and import tariffs are not only high but also complicated. Her company imports textile dyes, auxiliaries, textile fibres and chemicals. Custom tariffs for textile dyes are not that high (only 5 per cent import tax 9 per cent valued added tax 4 per cent other taxes). But for some fabric items, tariffs may amount to 55 per cent and for clothing items to 75 per cent.
Majid Nami, board member of Iran Textile Exporters & Manufacturers Association (ITEMA), says that according to Iranian statistics clothing imports in 2016 were as little as $61 million. However, according to UNIDO statistics, these imports amounted to $1 billion annually, with China and Turkey being the principal countries of origin. The ITEMA is aware that much clothing enters Iran illegally. The association has been putting pressure on the government in order to enhance border control. Several neighbouring countries lack stability and the means to ensure a strict control of the borders with Iran. There are thus many possibilities of smuggling goods into Iran.
Responding to the demands of ITEMA, the government has initiated an obligation for clothing brands to be registered. Among the Western brands which can be found in the shopping malls in Tehran and some other big Iranian cities are Zara, Bershka, Benetton, Mango, Roberto Cavalli, Gucci and Ecco shoes. It's however doubtful if the registration obligation will be of much help in creating a level playing field in Iran for Indian and other bona fide clothing exporters.
Minimal support from the government
Though the development of the textiles and apparel industry, because of its huge potential for job creation, was listed as one of the ten priority goals of the 20-year development plan Vision 2025 that was adopted in 2005, Iranian companies feel that they have been left out in the cold.
Tahmineh Molana, international relations manager of the Iranian monthly textile magazine Nassaji Emrouz, thinks that the government should support the sector in its double integration effort. First, there's the need to better integrate the value chain from fibre to fashion. Second, in order to succeed in transforming the textiles and apparel industry from a resource-based to a knowledge based industry, the knowhow and R&D results of the universities should be better integrated into the management of the companies.
The ongoing brain drain
Many of the young Iranians are in search of study or job opportunities in countries like Germany, Canada and Denmark where they expect to get a better chance than in Iran to chase their dreams. As a result, Iran is deprived of the services of some of its best and brightest individuals. The reported annual exodus of more than 100,000 educated men and women in search of better and safer opportunities has placed Iran near the top of nations experiencing a brain drain.
Marjan Haddadian and her sister, who are both fluent in European languages, established the company Fartak Andishan Green Card in Tehran, which aims to facilitate and speed up connections between Iranians and universities, high schools and employers in select countries, especially in Germany and France. For the time being, Iranian metallurgic and mechanical, chemical and petrochemical, software and electronic engineers seem to be more eager to find jobs abroad than textile engineers, with their number in Iran being estimated at 10,000.
Tahmineh Molana, who is also the Iran Representative of the leading trade fair Premiere Vision, is working hard to attract Iranian visitors to the Premiere Vision events in Paris and abroad, especially in Istanbul. She regrets that currently no Iranian fabrics manufacturer would qualify for exhibiting. Their level of creativity and quality is simply not high enough. Also regrettable is that many Iranian textile companies who decide to visit Premiere Vision see it as an enjoyable privilege, and not as an occasion to bring their designers in contact with international creativity.
Iranian creativity in textile design is said to be too much inspired from traditional designs.
Low productivity resulting in high prices
With more than 100 years of immersion in the oil and gas industries, the bulk of the Iranian economy still operates at mid-twentieth-century technological standards. An average Iranian textile factory uses several times more energy, more workers, more material and more hours to produce a unit of final product than a similar entity in the internationally competitive textile countries.
Even Iran's most famous textile export products, the handwoven rugs, are rapidly losing market share. Until six years ago, Iran was the world's biggest exporter of kelims and other handwoven rugs with exports exceeding $19 million in 2011 (compared to $17 million Indian exports). However, since 2011 the annual export of handwoven rugs from India has more than doubled while the more expensive rugs from Iran have nearly halved. In 2016, India was by far the world's largest exporter of handwoven rugs (around $30 million), while Iran with an export of $11 million ended up in the fourth place after India, Germany and Morocco.
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