The Romanian garment industry is struggling to stay competitiveThough there are numerous individual success stories in the Romanian textile and garment industry, sector statistics show a more bleak picture: employment, production and exports are declining, while imports and the sector’s trade deficit are on the rise. Jozef De Coster reports.
Under communist rule, Romania had the biggest textile production capacity in the whole Eastern Bloc, after Russia. In 1989, the last year of Ceausescu’s dictatorship, the textile and clothing industry employed more than 800,000 people, and its large state-owned textile companies, like Apaca in Bucharest with nearly 20,000 workers, were the pride of the whole nation.
After the revolution of 1989, what happened to Apaca also happened to most of Romania’s former industry leaders. Following the fall of communism, Apaca was privatised and reborn as Faberrom in 1991. Production gradually switched from large to small quantities, but of higher quality. Exports turned from the socialist countries to Western countries.
Since 2007, when Romania joined the European Union, Faberrom’s clientele has changed in favour of top luxury brands. Today, fewer than 200 people sew garments for prominent Western brands, and production has dropped from 7,000 to only 350 pieces per day.
Today, around 148,000 people work in Romania’s textile and garment industry, according to the country’s National Institute for Statistics (Institutul National de Statistica – INSSE). But about 135,000 jobs were lost between 2007-2017 as a result of rising competition, both within the region and from Asia, along with the financial crisis, and VAT hikes discouraging foreign investment.
However, Mihai Pasculescu, president of Fepaius, the Romanian federation of textile, clothing and leather industry, makes a distinction. He explains that the primary textile sector – spinning, weaving and finishing – had few opportunities to refocus on profitable niche markets, due to a lack of capital and restrictive credit conditions.
„If we were to identify a problem area, it would be the primary sector, while the rectilinear knitting, garment, footwear and leather goods sector is a consolidated area.”
Surprisingly, according to Euratex trade statistics, the Romanian textile industry performed much better than the clothing industry in 2018. Romanian textile exports rose 11.9% during the year, while imports were up 6.6%. But Romanian clothing exports went down 4.5%, while imports soared 20.5%.
Workers and companies on the move
According to the IndustriAll global union, garment industry salaries are close to the national minimum wage of RON2080 (EUR440 or US$ 486) per month. Even though the government has raised the minimum wages in the past years, workers took a big hit in 2017 when social security contributions were moved from companies to employees, leaving them with a monthly net pay of around EUR250-300, the union says.
The impact of higher wages and other rising costs means the Romanian garment industry has become less internationally competitive. Some manufacturers have already shifted production capacities to other eastern European countries, while major brands have started paying more attention to Bulgaria, Moldova, Ukraine and Georgia, where production costs are lower.
In early 2017, women’s and girls’ wear designer and manufacturer Alison Hayes decided to close its 350-worker plant in Urziceni, citing the higher minimum wage, lack of good infrastructure and the weakening currency. Ottorose Rom, one of the oldest suppliers to H&M in Romania, reportedly moved to Georgia.
Up until 2015, Romania’s annual exports of textile-clothing-leather exceeded imports – but since 2016 this is no longer the case. According to Fepaius, last year imports of EUR7.12bn were EUR1.2bn higher than exports of EUR5.91bn.
Though many Romanian CMT-producers are in trouble, the industry has little choice other than to continue paying higher wages. With nearly 4 million Romanians working abroad, out of a total population of 19.5m, the textile and garment industry has to compete for the remaining workforce with apparently more attractive sectors like automotives, ICT and tourism and even the construction sector.
As in so many other countries, Romania’s textile and clothing industry has a huge image problem. It’s considered a sunset industry – although a lot of companies, like those of men’s suiting manufacturer Seroussi Group (which includes the Ikos and Norada factories), Promar Textil Industries, Pandora, Tanex and Romanitza are proving that it is possible to produce successfully in Romania.
Fepaius director Lavinia Cristea says Romanian fabric manufacturers are also able to supply fashion fabrics of high quality to the garment industry, with firms that exhibited at the September 2019 edition of Première Vision including Catex, Conflux, Cristian ABC, Euroconf/Paolo Rossi, Formens, and Siluete.
However, most fabrics used by Romanian CMT manufacturers continue to be imported. Fepaius wants to examine how Romanian manufacturers can potentially benefit from the Chinese Belt & Road Initiative. For example, Romania could offer more easy access to Chinese goods destined for the rest of Europe, or appeal to Chinese companies looking to produce textile goods that bear the ‘Made in Europe’ brand but bypass EU protectionism.
In the World Bank’s 2018 Logistics Performance Index, Romania ranked number 50, doing better than Bulgaria (57), Ukraine (66), Moldova (113) and Georgia (124).
Another big share of imports is due to foreign retailers. According to the market research company MKOR Consulting, 97% of Romanian fashion consumption comes from imports.
In the metropolitan area of Bucharest where there are 3m people, the best shopping locations are occupied by giants like Inditex, H&M and C&A. In 2018, Zara Bucharest attained a turnover of EUR487m (+7%). Each Zara store in Romania earned a net profit before taxes of EUR550,000, 5.5 times higher than similar stores in Germany, the financial newspaper Ziarul Financiar reported.
Weaknesses overshadow strengths
Romanian clothing manufacturers boast some advantages that Western brands won’t easily find elsewhere, especially the combination of great production know-how with a thorough understanding of what the brands require, such as smooth communication, certifications, and time-tested mutual trust.
Andrei Pena, director of Dialog Textil, is optimistic about the industry’s near-future, arguing that the Romanian garment sector is moving to a higher level. Romanian companies now tend to produce less for brands like Primark and more for brands like COS, which is part of the H&M Group.
Pena also notes that some foreign high-level companies clearly prefer Romania. Alison Hayes (UK), which has 7m pieces produced annually in eastern Europe, may have increased production in Bulgaria and Moldova, but has kept its design centre in Romania.
The Italian luxury clothes brand Moncler – number one in the Textiles, Apparel & Luxury Goods’ sector of the 2019 Dow Jones Sustainability Index – strengthened its presence in Romania with the purchase of a factory in Bacau through its subsidiary Industries Yield, which has 890 employees. And the German company Dr Bock Industries is a sustainability pioneer through its Romanian subsidiary RGT (Ready Garment Technology).
Unfortunately, in spite of significant GDP growth, Romania continues to struggle with a long list of issues that also impact the textile and clothing industry: an ageing population, emigration of skilled labour, diminishing cost competitiveness, persistent corruption, and an unpredictable business environment. Also the Ease of Doing Business is deteriorating: Romania fell from 35th place in 2015 on the World Bank index to rank 52 in 2018.
As far as the Romanian fashion sector is concerned, MKOR Consulting predicts a slight but ongoing decline in production and export. In 2019, fashion production is estimated at EUR3.47bn, a fall of 3% year-on-year, and fashion exports at EUR3.38, a drop of 1.5%.
An analysis of EU textile and apparel trade on just-style last year suggested that production of medium-priced products for consumption in the mass market was given to developing countries in Eastern and Southern Europe, such as Poland, Hungary and Romania. This compares with developed Western EU countries, such as Italy, UK, France and Germany, that produce high-end luxury apparel.