Garment industry

  1. Garment industry current status indicators

Garment industry in the economy of the country

Garment industry is one of the leading sectors of the Kyrgyz economy in terms of its volume, multiplier effect, as well as the relevance in addressing social problems.

The sector share in the structure of the entire industry is 3 percent as of the end of 2019. In the industrial production of the Kyrgyz Republic (the total production in 2019 amounted to 278 billion KGS), the production of precious metals traditionally dominates in terms of volume. Excluding the Base Metals Production component from total industrial production (51 percent of total industrial production in 2019), the share of garment industry will be 7 percent of industrial production.

Production volumes and dynamics

The garment industry of Kyrgyzstan is represented by «textile production», «clothing production and production of leather, leather products», as well as «footwear production». The volumes of industrial production in these sub-sectors in 2019 amounted to KGS 1,491.9 million (18 percent), KGS 6502.6 million (79 percent), KGS 264.7 million (3 percent), respectively. In fact, 80 percent of garment industry is apparel.

As Fig. 1 shows, in the evaluated period 2014–2019 (2014 = 100%) the physical volume of garment industry production (textiles, clothing and footwear) had been decreasing until 2016.  In comparison with the previous year, after 2016 there was a gradual recovery in production growth.

Most likely, there are several reasons for such dynamics in production. Among the main ones is the Kyrgyz Republic entering to the Customs Union in 2015. For the export-oriented sectors of the Kyrgyz economy, especially those that mainly use imported raw materials and whose main sales markets are in the EEU countries, this obviously came as a shock.

Garment products manufacturer needed a fairly long period of adaptation to new conditions including demand changes identification. By comparison, food processing enterprises, many of which were also export-oriented, were able to quickly overcome the shock and have resumed production growth since 2016.

Fig. 1. Dynamics of the volume of production in some subsectors of the industry of the Kyrgyz Republic

2020 is expected to be the most challenging year for the garment industry due to COVID-19. Thus, according to industry representatives [1], only 15-17 workshops out of about 1000 sewing enterprises have been operating during the quarantine period in Bishkek.

 

Regional production structure

Textile production is distributed relatively evenly in the territory of Kyrgyzstan. It is concentrated in Bishkek (29 percent), Jalal-Abad region (28.5 percent), Chui region (23 percent), Osh region (17 percent) — a total of 97 percent of all production (see Fig. 2).

Fig. 2. Structure of textile production by regions of the Kyrgyz Republic

Currently, textile production capacities are expected to grow. The construction of textile enterprise is planned on a land in Bishkek area provided by the government [2]. The Mayor’s Office of Osh city has also provided land for the construction of a textile-industrial park.  Currently the industrial facilities of «Kyrgyz Textile LTD» LLC are being constructed. [3]

Clothing production, in contrast to textile production, is highly concentrated in Bishkek city (65 percent) and Chui region (31 percent), accounting for a total of 96 percent of total production (see Fig. 3). In this region, there are prerequisites for the garment cluster creation.

Fig. 3. Garment industry structure by regions of the Kyrgyz Republic

 

Export and target markets of garments

The exports of the Kyrgyz Republic related to garments and textile products in 2018 amounted to slightly more than USD 150 million. This was the highest export volume in recent years. As Table 1 shows, in 2019 (before the COVID-19 pandemic), exports by commodity groups [4] 61, 62 and 63 decreased by almost one and a half times.

 

Table 1. Export structure of the Kyrgyz Republic by groups 61, 62, 63 CN FEA EEU [5] (million US dollars)

Group code*

Item 

2015

2016

2017

2018

2019

январь–июнь 2020

61

Garments and clothing accessories, hosiery, machine-knitted or hand-knitted

48,7

56,8

98,9

140,5

73,3

29,4

62

Garments and clothing accessories excluding hosiery, machine-knitted or hand-knitted

47,9

15,8

19,8

9,1

25,2

4,9

63

Other finished textile; sets; clothing and textiles

1,3

1,4

2,6

1,9

2,6

1,1

 

Total

97,9

74,0

121,3

151,5

101,1

35,4

 

In the total volume of exports in 2019, the export of products of groups 61, 62, 63 of the CN FEA EEU amounted to 5.1 percent. The manufactured products mainly were exported to the EEU countries — 98 percent in 2019, the target market is the Russian Federation.

 

Table 2. Export structure of the Kyrgyz Republic by groups 61, 62, 63 to EEU member states CN FEA EEU (million US dollars)

 

Group code*

Item

Price

доля страны

61

Garments and clothing accessories, hosiery, machine-knitted or hand-knitted,

including:

73,3

100%

 

Belarus

0,1

0,1%

 

Kazakhstan

15,0

20,5%

 

Russia

58,2

79,4%

62

Garments and clothing accessories excluding hosiery, machine-knitted or hand-knitted,

including:

25,0

100%

 

Belarus

0,027

0,1%

 

Kazakhstan

12,7

50,7%

 

Russia

12,3

49,1%

63

Other finished textile; sets; clothing and textiles,

including:

1,4

100%

 

Belarus

0

0,0%

 

Kazakhstan

0,6

42,9%

 

Russia

0,8

57,1%

 

For the period January-June 2020, the export of products (the same groups 61, 62, 63 of the CN FEA EEU) decreased by 20 percent compared to the corresponding period of the last year and amounted to only 35.4 million US dollars, including: code 61 — 29.4 million US dollars (minus 10 percent), code 62 — 4.9 million US dollars (minus 55 percent), code 63 — 1.1 million US dollars (plus 22 percent).

According to the website «Foreign Trade of Russia» [6] Kyrgyzstan with a group «Garments and clothing accessories, hosiery, machine-knitted or hand-knitted» was placed at 15th position with a share of 0.8 percent in the Russian imports structure. In 2019, China was the main trading partner with a share of 32 percent, followed by Bangladesh (with a share of 13 percent). According to statistics, Uzbekistan took fifth position with a share of 7 percent, Belarus — sixth position with a share of 4 percent and Armenia — 14th position with a share of 1 percent.

In 2019 Kyrgyzstan with a group «Garments and clothing accessories excluding hosiery, machine-knitted or hand-knitted» was placed at 21st position with a share of 0.5 percent in the Russian imports structure. In 2019, China was the largest supplier with a 39 percent share, followed by Bangladesh with an 11 percent share. Belarus — sixth position with a share of 4 percent, Armenia — 15th with a share of 1 percent and Uzbekistan — 23rd with a share of 0.4 percent.

Kyrgyzstan with a group «Other finished textile; sets; clothing and textiles» occupied an insignificant share of 0.07 percent in the Russian imports structure in 2019. The first line among suppliers of this category of goods is traditionally occupied by China with a share of 40 percent, Belarus — second with a share of 8 percent, Uzbekistan took fourth position with a share of 4 percent, Armenia — 35th position with a share of 0.2 percent.

As can be seen, the export of garment products to Russia from such countries as Uzbekistan, Belarus and Armenia in many cases exceeds the export of Kyrgyzstan. Apparently, the competition from their side will only increase.

 

  1. Some of the conclusions

The garment industry assessment in Kyrgyzstan allows to trace three stages of development.

Stage 1. Industry re-establishment. The garment industry (as it is now) is one of those that were created in Kyrgyzstan practically from scratch. This was the stage of the garment technologies learning, markets studying, recruiting and training the labor force. The results that had been achieved, first of all, was the merit of a large number of entrepreneurs, many of whom came to this industry without special knowledge and were able to establish competitive production.

Cheap labor and low electricity cost were among the contributing factors. It is also important to note that during this period almost the entire industry was in the shadows. This minimized the costs of relations with the State budget, but created problems for enterprises in accessing resources, connecting to the energy network, etc.

Stage 2. Getting out of the shadows, legalizing business, increasing production and exports. Since 2005, a patent system has been introduced for the industry enterprises, which allowed the absolute majority of enterprises to work openly. The emergence from the shadows was supported by the industry enterprises and, obviously, was associated with a stage of development when working in the shadows brings more costs than benefits.

Currently, the legal form of almost all enterprises is an individual entrepreneur operating based on a patent. This made it possible for enterprises to significantly improve access to financial resources, establish sustainable economic relations, reduce risks and harmonize relations with government agencies. During this period, the number of enterprises in the garment industry continued to grow and production increased, technological re-equipment improved, and the geography of exports expanded. The following Industry business associations were created: LegProm Association and SoyuzTextil Association of Knitting Enterprises.  These associations help enterprises to organize and protect their interests.

Stage 3. Challenges response, stabilization and development. Problems related to COVID-19 have already been noted above. The industry has been adversely affected by halted production, reduced orders, problems with the delivery of raw materials and dispatch of finished products. The industry was also affected by a drop in demand in traditional sales markets, a drop in living standards in importing countries, and a change in purchasing demand and consumer behavior in general.

There are also internal problems that have led to a drop in product exports. The growth in the number of garment enterprises has inevitably led to increased internal competition for resources, labor and orders. As noted above, profitability has dropped by half. Competition in foreign markets has increased the requirements for the quality and competitiveness of products, the ability to produce the required volume of products in the specified time frame. Obviously, many of these problems can be solved. The garment industry enterprises have extensive experience, reserves for activities optimization, quality improvement and sustainability achievement.

However, most likely, the industry is facing the need for structural reforms aimed at increasing scale, consolidating production, improving product quality and more complete coverage of the garment production stages, as well as entering new garment market segments and new markets.

Considering these conditions, the development of a full-fledged garment cluster based on enterprises in Bishkek city and Chui region can become an important step for the products volume and quality increase, competitiveness growth necessary for covering key links of the production chain, including textile production, logistics improvement.

Solutions to these problems require significant investment provided the active participation of entrepreneurs themselves and proper governance by state agencies.