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Garment makers optimistic on liberalisation

Khaleej Times, UAE

Garment makers optimistic on liberalisation

8 September 2005

DUBAI’S textile and garments market is one of the largest and strongest markets in the region. In 2004, Dubai’s direct exports of the products reached Dh625 million, or 13 per cent of Dubai’s direct exports, while re-exports reached Dh6 billion; leading to a total share of 10 per cent to the total value of goods Dubai directly supplied to the rest of the world.

According to a report by Dubai Chamber of Commerce and Industry, textiles and garments sector marked steady growth in recent past with estimated production reaching Dh2.1 billion in 2004. Further, a 5 per cent growth in production is further expected in 2005. First quarter employment of the DCCI member companies in the sector was estimated to be 7,455 workers.

Dubai textile and garments industry has been mainly dependent on imported raw materials from different destinations. Data for 1995 showed that about 91.5 per cent of the raw materials are imported and only 8.5 per cent are sourced from the local market.

Among the main destinations of textile and garments exports are US and EU. The UAE are currently negotiating Free Trade Agreements (FTAs) with some of its major trading partners, including the US. While this will imply scrapping of tariff on export of textiles and garments to the USA, threats to existing companies in Dubai may be expected as rules on commercial presence of foreign owned-companies in the country will likewise be relaxed or fully liberalised.

In line with the need to know the expectations of companies in Dubai on the effects of FTAs on their businesses, the DCCI conducted a survey of textiles and garments manufacturers in the second quarter of 2005.

Of the 32 companies that responded to the survey, 50 per cent were manufacturers of ready-made garments; 29 per cent, textiles manufacturers; and the rest, manufacturers of made-up textile articles and carpets.

Source of the raw materials: The survey highlighted the great dependency of Dubai manufacturers on imported materials, with 85 per cent of raw materials being imported and only 15 per cent being sourced from local market.

India was cited as the most common supplier of the industry’s imported raw materials with 71 per cent of the respondents citing the country as their main source. Other sources were Pakistan and China, cited by 57 per cent; EU, by 21 per cent; and Egypt, by 7 per cent.

Sales of the textile products: Most of the manufacturers surveyed were export-oriented, exporting more than three-fourths (76 per cent) of their production and retaining only 24 per cent in the local market. Major destinations identified by Dubai textile manufacturers were the EU, identified by 61 per cent as export destination; US, 50 per cent; AGCC countries, 43 per cent; MENA, 29 per cent; other Asian countries, 21 per cent; and all other countries, 29 per cent.

Quota system effect on textile sales: The US garment quota system was eliminated in January 2005. Since US is a leading market for Dubai’s exports of garments, the survey asked the manufacturers about the effect of this on their businesses.

The majority said they expected either positive (33 per cent) or no effect at all (25 per cent). However, those who believed it would have negative impact still constituted a fairly large group 42 per cent).

FTA effects on garments industry: The FTAs that are currently being negotiated by UAE with some of its major trading partners are expected to introduce changes in the industry.

The survey highlighted varying expectations for the effects of FTA by country. A very high positive expectation was expected for the FTA with US (91 per cent) and none expected negative effects.

On the other hand, FTA with China is perceived to be the least favourable with only 30 per cent saying it would have positive effect, while 20 per cent expected negative effects, for a net score of 10 per cent.

Those who expected no effect accounted for 50 per cent of the manufacturers surveyed.

Included among countries for which FTA are expected to be either favourable or would have no adverse effects were EU, Australia and Singapore.

On the other hand, although majority expected either favourable or no effect for an FTA with Malaysia, India and Pakistan, 18 per cent, 20 per cent and 27 per cent, respectively, believed there would be negative effects.

The survey results show that 91 per cent expect that an FTA with US will have positive effect on their business and only 9 per cent expect that it will not affect them.

Those who believe that FTAs with China, India, Malaysia, and Pakistan will have negative effects may be considering the fact that these countries are major exporters of textile and garments. In addition, they have the advantages of the availability of the raw materials and cheap labour, giving them an edge over Dubai manufacturers.

Nonetheless, majority of Dubai textile and garment manufacturers maintain bright prospects for the future of the market under the FTAs, with 79 per cent of them expressing this.