The Fall and Fall of the Middle East
Understanding the impact of the Middle Eastern strife on the Indian apparel industry
According to a May 2014 report by Corporate Catalyst India, the textile sector in India contributes about 14 per cent to industrial production, four per cent to the gross domestic product (GDP), and 17
and apparel share in world trade from the current
THE TEXTILE AND CLOTHING SECTOR IS YET TO RECOVER FROM THE SHOCKS OF DOWNTURN THAT HIT IT IN 2008 AND THE VIOLENCE THAT HIT THE MIDDLE EAST IN 2010 HAS BEEN ITS UNDOING.
However, there are few industries in the country that have seen as many highs and lows as the textile industry of India. One of the oldest and most well-known sectors of Indian industry, the Textile & Clothing (T&C) sector, is yet to recover from the shocks of the downturn that hit it in 2008 and the violence that hit the Middle East in 2010 has been its undoing. With this, the T&C industry took a further beating, leaving it unable to come to terms with this.
SEEDS OF DOWNTURN SOWN
As the economic recession of 2008 jolted economies around the world, the United States and European Union remained amongst the most severely impacted. As one of the primary destination markets for the Indian garment industry, the result of this downturn on our trade was evident. In the meantime, countries such as Bangladesh, Sri Lanka and China also shot to prominence on the global T&C industry map due to the advantages they enjoyed on account of cheap labour and the mass production sale. To counter the drying up of traditional markets, the Indian industry soon began scouting for newer markets. Soon, regions of the Middle East were identified and the Indian industry had found a new trade partner. However, this success story was short-lived. The Arab uprising in the spring of 2010 put paid to all the expansion plans mapped out by the Indian players.
Between 2010 and early 2011, the first bursts of revolt were sparked in Tunisia with the masses threatening to overthrow the crony capitalist regime of the Ben Ali govt. Under pressure from the citizens and under danger of a massive revolution, power finally changed hands. This successful example led to people across the region taking matters into their own hands. And soon countries like Egypt, Algeria, Jordan, Iran and Yemen began to follow suit.
As a result of this widespread unrest, most establishments such as retail and manufacturing units were shut throughout the duration of the protests. Tourists also fled the country and directives were issued by most governments, advising against travel to the region. As a result, the income sources in most of these regions dried up.
RESULTANT OIL CRISES SPARKED OFF
The direct impact of the protests was the shortage of crude oil availability which impacted manufacturing economies uniformly, the world over. The struggling garment industry that was slowly limping back while surviving was not cocooned from this effect either. Increase in the price of almost everything, right from machinery and raw materials to transport left the industry badly damaged in this bloodbath.
Today, however, it is a different situation. Speaking about the ongoing crises, Dr Arun Singh, Senior Economist, Dun & Bradstreet India says, “The falling crude oil prices in the market have adversely impacted the economies for the OPEC countries. As a result, the trade basket of the Middle East has significantly gone down, thus also impacting revenue.”
AS A RESULT OF THE ONGOING MIDDLE EAST CRISIS AND THE RESULTANT CRUDE OIL PRICE FLUCTUATION, MARKETS ACROSS THE WORLD HAVE REFLECTED CONSUMER SENTIMENT.
RAW MATERIALS IMPORT
While the Middle East is a significant destination for the Indian T&C industry, certain regions are also important source markets. Nine per cent of the raw wool demand for the industry was met by imports from Syria and some other countries. The strife over the past five years has resulted in massive shortfall in the import quantities. As a result, India is dependent on other and more expensive source markets, thus hiking its input cost. This directly affects the standing of the Indian consignment in a competitive and pricesensitive international marketplace.
IMPACT ON THE MARKETS
As a result of the ongoing Middle East crisis and the resultant crude oil price fluctuation, markets across the world have reflected customer sentiment. The impact of this volatility on the rupee has also been disastrous, where we are currently trading at
R61 per dollar exchange rate. This, once again, has led to pressure on the quantity of imports and their value. The rising input costs, once again, have rendered the Indian manufacturing industry at a disadvantage in the international market.
With the resurgence of the traditional market to its once-upon-a-time glory which is a seemingly distant dream and with the fall of the new markets which is a global reality, the Indian T&C industry is bracing itself for a new journey.
“The new Government at the centre has re-focused its energies on an old Indian diktat – ‘Look East.’ The regulators have now suited up to set forth and explore these old and unexplored territories. These are existing markets that we have not established trade links with, for the garment sector,” states Dr Singh.
The ‘Look East policy,’ formulated in 1991, has once again come under focus with External Affairs Minister, Sushma Swaraj, verbalising the ‘Act East policy’ during her visit to Vietnam. The Government’s thrust on leveraging from the vibrancy and dynamism that the Southeast Asian economies are enjoying is evident.
The continuing adverse conditions that have impacted the performance of the textile industry for long have forced the regulators to look inwards. Changes are being brought about on a grassroots level to make the industry more sustainable. A R100 crore venture capital fund to provide equity support to start-ups in the textile sector, an Integrated Skill Development Scheme for sub-sectors of the textile industry such as handicrafts, handloom, jute, sericulture, etc., are only some of the measures being undertaken by the Government to support the sector.
Soon, the textile and clothing industry of India should be on the path to resurgence.
THE ROAD AHEAD
With strong domestic demand and rising international consumption in new markets, the future of the Indian textile industry looks promising. With rising disposable incomes and restored availability of raw materials from newer source regions, the Indian marketplace looks set for a rehaul. According to statistics by the India Brand Equity Foundation, the organised apparel segment is expected to grow at a compound annual growth rate (CAGR) of more than 13 per cent over a ten year period.
India Ratings & Research Pvt. Ltd. (a Fitch company), has also improved its ratings for the cotton sector from negative to stable, which is primarily driven by improving revenue prospects in the newer export economies.
EXTERNAL AFFAIRS MINISTER, SUSHMA SWARAJ, VERBALISED THE ‘ACT EAST POLICY’ DURING HER VISIT TO VIETNAM.