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Brexit’s negative impact on Romanian textile factories

"Romania’s textile industry is struggling to make profits with stiff competition from Asian countries and its own high labour costs. And the situation has been augmented by Brexit resulting in many companies shutting shops. For example, Alin Benta, which operated in Romania’s second city of Lasi. After reopening in early 2017, Benta started producing upholstery for Swedish IKEA. Like many of Romania’s roughly 4,500 textile factories, employing more than 200,000 people in one of the EU’s poorest countries, Benta’s operation relied heavily on British clients who paid in pounds. As sterling started devaluing by as much as 20 per cent against the Romanian lei, the factory’s monthly earnings fell by 50,000 lei (£9,400). Benta had the courage to revive once again and find clients but other companies have been unable to do so."

 

Brexits negative impact on Romanian textile factories 001Romania’s textile industry is struggling to make profits with stiff competition from Asian countries and its own high labour costs. And the situation has been augmented by Brexit resulting in many companies shutting shops. For example, Alin Benta, which operated in Romania’s second city of Lasi. After reopening in early 2017, Benta started producing upholstery for Swedish IKEA. Like many of Romania’s roughly 4,500 textile factories, employing more than 200,000 people in one of the EU’s poorest countries, Benta’s operation relied heavily on British clients who paid in pounds. As sterling started devaluing by as much as 20 per cent against the Romanian lei, the factory’s monthly earnings fell by 50,000 lei (£9,400). Benta had the courage to revive once again and find clients but other companies have been unable to do so.

Cut-throat competition

Workers at hi-tech car plants in Slovakia, Poland and Hungary have used their bargaining power to extractBrexits negative impact on Romanian textile factories 002 higher wages from foreign auto giants, Romania’s garment factories have very little grip over the market. Mihai Pasculescu, Head of the Romanian Textile and Leather Federation says mass brands look for low prices. Similarly, Aurelian Ciobotaru, a factory owner in Lasi, added the one who sets the lowest price takes the order. Elena Stoica, President, Romanian Manufacturers Association and owner of two factories employing about 1,000 people in Vrancea County of eastern Romania, says negotiations went badly. Some (brands) agreed to support them but many didn’t.

Data from Romanian Ministry of Commerce and the British Romanian Chamber of Commerce demonstrates a steady decline in orders from British brands over the past years. The slump will be reflected in the statistics in the next couple of years, as factories try to switch clients. It takes 2-3 years to rebuild.

Governed by small industries

The Romanian market is dominated by small and medium-sized factories, accounting for about 95 per cent of units. They remain dependent on middlemen and have minimal bargaining power. Brands can simply take their business elsewhere, at little upheaval or cost. Bettina Mussiolek, Coordinator for Eastern Europe and Turkey at the Clean Clothes Campaign opines there is no way for the garment industry in these countries to upgrade. It’s a real trap both for the national economy and factories. And it’s a social disaster because only poor wages can be paid and workers face extremely bad conditions.

Big factories, which face outside monitoring of working conditions, frequently pass orders to smaller factories, even to tiny, apartment-based operations where oversight is minimal or non-existent. For smaller factories to grow, move up the hierarchy and secure better prices, they need to be certified. But many cannot afford the investment necessary to secure certification.

Pasculescu said that while Brexit indeed marked a tipping point in terms of forcing factories to look elsewhere beyond Britain, garment production in Eastern Europe was still competitive with increasingly expensive rivals in China with proximity to Western markets. The industry is not about to fold. But between 2007 and 2015, an estimated 3.4 million Romanians have left to work abroad, putting the country second to Syria in terms of migration rates. While that time, the industry could manage the downturn, the Brexit impact seems to be extremely unencouraging.

 
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