Local factories are becoming more attuned to the latest fashions. But the sector as a whole is beset by high production costs and tough competition from Southeast Asian products.
The numbers speak for themselves. In 1999, there were 1,239 textile and clothing factories in the country. Four years later the figure dropped to 762. "Now there are about 560," said Sleiman Khattar, president of the Syndicate of Lebanese Textile Manufacturers.
Because of the closures, the number of people that the sector employs halved from 15,470 in 1999 to about 7,000 at present.
The industrial sector in general has been suffering from high production costs coupled with intense competition from imports, but the situation for textile and clothing manufacturers has been particularly bleak because it also has to deal with what some say is unfair competition from Southeast Asia.
The customs duty on imported textiles and clothing is already "very low," said Elie Yachoui, a leading economist who is familiar with the sector. "It is either 5 percent or LL5,000 per kilo," said Yachoui, adding that the customs administration applies whichever tariff generates the most revenue for the state. But, what is really crippling the industry is that a number of traders import cheap clothes from Southeast Asia and claim they are second-hand to benefit from the low tax imposed on used clothes, just LL1,000 per kilo. "The main problem comes from so-called used garments," Khattar said, adding that this represented unfair competition.
The textile and clothing industry worldwide has been undercut by cheap products from Southeast Asia. "China and India have invaded the world," Yachoui said. The situation is so bad it has practically jeopardized the business model of Weaveprint, a towel factory established in 1999 with an initial investment of $3 million, under a joint venture agreement with Clarysse, a major Belgian towel company. The Belgian firm, which owns 20 percent of the factory, "was supposed to purchase at least 50 percent of the entire production. But they are only taking 35 percent because Chinese products are cheaper," said Elie Katbe, general manager of Weaveprint.
He said the Belgian firm, which covers most European markets, was buying from China because Europeans have become more concerned about price than quality. The towels produced at Weaveprint are of a better quality than what is coming out of China - and also more expensive. "We sell a kilo for $10.50 while Chinese products sell for $6.50. It's impossible for us to lower our prices because the cost of energy is too high," Katbe said, adding that it constituted about 30 percent of costs.
On account of high production costs, a recent UN-ESCWA study concluded that the solution for local textile and clothing manufacturers was to enter the high-quality end of the market. Industrialists don't discount the proposal altogether, however, they say it is not entirely pragmatic. "Many firms already have modern machines and the know-how to produce high-quality goods. But, Lebanon is a small market and the consumer base for these products is shrinking," Yachoui said. He added that manufacturers couldn't depend on export markets because "to export you need to be financed properly by banks and the cost of borrowing is too high."
Katbe knows this first hand. "We can make very high quality towels because we have all the machinery necessary, but there are a few markets for them and it is hard to reach these markets," he said. "Plus, they are making the high-quality products in Europe."
Katbe said that he had approached Ralph Lauren's company to supply them with towels for their home collection, but delivery time was a concern because of Lebanon's location. Plus, the price was about 10 percent less than what European factories offered, he said. "It's not interesting enough for them," he said. "To reduce our prices we need to invest more in machinery - and that's very costly."
"The high-quality segment is not the only alternative for us," Khattar said. He added that the sector adopted a strategy called short circuit, whereby the latest fashions were introduced to the market before Southeast Asian products. "We try to get to the market 15 to 20 days ahead of imports from China," Khattar said. In the rapidly changing fashion industry, this is a major head start. "This is the only way we can survive," Khattar said, adding that locally produced items were more expensive, but of better quality.
To beat them to the market, clothing manufacturers order the latest fabrics from local textile plants. "We can provide them with what they want in a week," Katbe said. Supplying the latest textile fashions needs an investment in modern machinery. Khattar recently purchased $200,000 of equipment that gives standard denim the faded and stone-washed appearance.
"The problem with catering only to the local market is that the quantities are small," said Katbe, who also owns an older textile factory called Industriel Libanais de Textiles. In 1975, it produced 800,000 meters of fabrics, but today output is down to 200,000 meters. "If we work as a regular factory with high production, we would have to compete with China, India and Pakistan," Katbe said, adding that most producers of textiles for clothing now only cater to local clothing factories.
Khattar said that clothing manufacturers were able to export - even to Europe and the US - because they competed on supplying the latest fashions, not the cheapest prices.
Even so, while overall exports have been on the increase since 1997, going from $642 million to $1.5 billion last year, textiles and clothing - once the country's leading export item - have seen a decline in exports. In 1996, exports were $92 million, accounting for 12.52 percent of total exports, while last year the figure dropped to $65 million, a mere 4.24 percent of total exports.
To prevent further decline in the sector, industrialists have been lobbying the government for support. "First of all, we want them to forbid the importation of used garments," Khattar said. "Secondly, we want them to increase the tax on imports from LL5,000 to LL15,000 per kilo. It is allowed by the European Union - we checked already."
"Thirdly, we would like to be able to manufacture the uniforms for the army, police, customs and so forth," he said. "They are being imported from China because it is cheaper. Maybe they should import Chinese soldiers with them - it would also be cheaper."
Natasha Tohme
© The Daily Star 2004
