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Azerbaijan's Light industry: Can compete on the world commodity market?

Analysis Materials 1 September 2011 11:54

Business community has boosted interests in light industry considerably over the past few years. Still its contribution in the country's GDP is small - only 0.15 percent. National commodity market of this field remains dependant on import by 90 percent.

There is demand for qualitative local goods of light industry, but unfortunately supplies are still insufficient. Furthermore there are many questions and unsettled problems impeding the development of this field. The issue becomes more topical amid Azerbaijan's forthcoming entrance to the World Trade Organization (WTO). Could we compete on the world commodity market? According to majority of experts, namely the light industry may turn out of first victims of this process.

BACKGROUND INFORMATION: Light industries require only a small amount of raw materials, area and power. The value of the goods are low and they are easy to transport. The number of products is high. While light industry typically causes relatively little pollution, some light industry can cause significant pollution or risk of contamination. Electronics manufacturing, itself often a light industry, can create potentially harmful levels of lead or chemical wastes in soil due to improper handling of solder and waste products (such as cleaning and degreasing agents used in manufacture).

A section of an economy's secondary industry characterized by less capital-intensive and more labor-intensive operations . Products made by an economy's light industry tend to be targeted toward end consumers rather than other businesses. Consumer electronics and clothing manufacturing are examples of light industry.

Light industry unites several fields:

1. Textile

2. Garment

3. Fancy goods

4. Leather processing goods

5. Fur

6. Shoes

Azerbaijan's light industry by force of cut in production of raw materials - cotton, wool and silk loses the domestic crude base. Furthermore, market conditions define that export of raw materials for light industry is more profitable than its use in the local industry.

In January to July 2011 enterprises of Azerbaijani light industry manufactured goods worth 41 million manat. In particular, in this period the industry produced 1,100 tons of cotton fibre, 6,300 tons of cotton thread, 850 square meters of carpet and carpet wares, 2.5 million pairs of socks, 43,700 women's and men's suits, 51,800 men's coats, jackets and rain-coats, 33,700 men's trousers. At the same time, as of August 1, 2011 the stores of light industry enterprises had goods worth 16.6 million manat, of 6.5 percent of ready product.

Production of Azerbaijani light industry in 2011

Title

Production in January to July, 2011, in mln manat

Compared to January to July, 2011, in percent

Industrial production, in total

18018,0

97.7

Refining industry

3303,6

109.7

Spinning industry

17,3

120.5

Garment production

13,5

153.4

Production of leather, leather wares and shoes

10,2

94,3

Source: State Statistics Committee of Azerbaijan

Production of the Azerbaijani light industry

Product title

Production in January to July, 2011

Compared to January to July, 2011, in percent

Ready product reserves as of Aug. 1, 2011

Spinning industry

Cotton fibre, in tons

1118,8

75.2

577,8

Cotton fabric, in ths sq.m

547,5

73.6

277,9

Including gauze

523,4

70.7

Cotton thread, in ton

6304,3

136.5

629,9

Cotton sheets, in ths pieces

18,5

19.5

1,3

Carpets and carpet wares, in sq. m

850,0

70.2

54445,0

Garment production

Men's trousers, in ths pieces

33,7

107.3

7,7

Men's coat, jackets and rain-coats, in ths pieces

51,8

187.7

Men's suits, in ths pieces

43,7

60.6

0,9

Socks, in ths pairs

2513,7

3.3 р

99,9

Leather and leather wares, shoes

Leather, in ths sq.m

333,9

69.5

188,5

Leather shoes, in ths pairs

172,1

58.1

18,7

Source: State Statistics Committee of Azerbaijan

Compared to indices of Azerbaijani light industry during the Soviet period, when Azerbaijan had developed light industry, share of the GDP was eight percent, the contemporary light industry differs for scarcity of production, which the official statistics testify. Such situation appeared due to problems of the field, which should be tackled as soon as possible.

Major problems of the field:

· Use of morally and physically outdated technological equipment

Thus, one of key problems of outputting import replacing goods is technical rearmament of the field. This is not only support to this process, but creating facilities for transition to highly technological industry.

The field's fleet is comprised of outdated equipment by 80 percent. The last technical reequipment dated to 1985-1990. Annual renewal of the fleet of vehicles and devices at enterprises of the light industry does not exceed 1-2 percent, whereas the figure is 14-16 percent in economically developed countries. Over the past 10 years China and Turkey have fully reequipped by both export supplies and state aid. In China, for instance, light industry producers enjoy privileged taxation terms. As result of such protectionism on the state level these countries became leaders in the world export of light industry.

· Big share of shadow and illegally imported product on consumer market

Illegal import of infringing, falsified and poor quality merchandise remains one of painful points in local light industry. Unfortunately, official statistics does not provide figures on volume of sales and import of shadow industry products. Sometimes, goods are not so safe for human health. According to official statistics, import of light industry goods to Azerbaijan constituted 70,881,600 manat in 2010.

Import of light industry products to Azerbaijan, in ths dollars

Commodity groups

2006

2007

2008

2009

2010

Leather, leather wares and furs

1889.7

1932.1

2647.9

3074.6

2742.4

Finished leather

40674.0

40552.0

40544.0

40768.0

39.8

Leather wares and women's bags

1811.7

1890.2

2576.9

2872.9

2609.6

Natural and artificial furs and wares of them

66.5

32.8

69.9

187.9

93.0

Spinning materials and wares

64191.6

56318.3

59279.2

52851.5

61035.3

Silk

1328.3

2375.7

3631.0

0.9

32.5

Wool and fuzz

109.5

130.7

262.5

156.0

100.3

Cotton

1314.3

1124.1

870.0

621.0

2163.2

Spinning threads, cotton fabric and threads

1448.7

468.6

172.4

272.4

114.5

Synthetic threads

5342.4

3995.8

4140.0

1793.9

4452.9

Synthetic fibre

9197.3

4982.6

2416.3

1941.0

2341.2

Non-knitted materials

5106.1

3995.5

3252.5

5305.7

4510.9

Carpets and other carpet covers

2545.8

2972.9

4443.7

4246.2

4521.2

Special fabric, lace, gobelin

124.0

262.3

406.9

178.5

269.4

Knitted covers

3513.1

4750.5

8108.1

6545.7

6264.5

Knitted fabric

341.7

452.7

468.4

238.3

405.4

Knitted garments

2755.6

2570.6

1873.7

2093.3

2779.8

Garments (not of jersey)

23826.1

19152.8

21624.9

21986.4

23065.5

Other goods of spinning industry

7238.7

9083.5

7608.8

7472.2

10014.0

Shoes, hats and other fancy goods

16078.1

14131.7

10133.7

8100.1

7103.9

Shoes

15094.8

12482.7

9137.5

7036.2

6410.3

Head-dresses

589.6

1490.0

680.1

496.5

446.5

Umbrella, hookups, etc

101.3

135.7

159.7

273.8

231.7

Fags, artificial flowers, chignon

292.4

40625.0

156.4

293.6

40648.0

Source: State Statistics Committee of Azerbaijan

  • The enterprises' lacking of own funds to develop production

According to ASPI Consulting Engineers estimations, sector needs 200 million manat to upgrade, to apply production planning system, to design development strategy, to enter the regional markets, to attract investments, to use international accountancy and quality management.

The development of local light industry is included in the state program on development of Azerbaijani regions in 2009-2013. First steps have been taken in this direction, and positive changes are even well seen. Old enterprises are reconstructed and the new one enterprises of light industry are built, mainly in regions.

There are 36 privatized clothing and spinning enterprises in Azerbaijan.

Investment in light industry of Azerbaijan, in mln manat

2006

2007

2008

2009

2010

Spinning industry

4,9

16,3

2,6

1,5

9,8

Foreign investments

0

0

0

0

0

Domestic investments

4,9

16,3

2,6

1,5

9,8

Garment production

6,7

0

0

0,7

13,6

Foreign investments

0

0

0

0

0

Domestic investments

6,7

0

0

0,7

13,6

Production of leather, leathers wares and shoes

0,3

0,03

1,1

1

1,1

Foreign investments

0

0

0

0

0

Domestic investments

0,3

0,03

1,1

1

1,1

Source: State Statistics Committee of Azerbaijan

Nevertheless, light industry in Azerbaijan has definite prospects. With existing local raw material resources and consumption market, the light industry can be attractive for significant foreign investment.

· Insufficiency in workforce and low wages

Light industry is not so attractive for youth and specialists. Azerbaijan's refinery industry involves 22,100 people, with the major part of 15.9 percent engaged in food industry. Respectively, the light industry involves an inconsiderable part of workforce.

During the Soviet period a trade school used to function at every enterprise of the light industry.

Wages in light industry of Azerbaijan

First six month of 2011, in manat

First six month of 2010, in manat

Comparison, in percent

Spinning industry

262.6

198.5

132.3

Garment production

255.5

191.7

133.3

Production of leather, leather wares and shoes

295.0

201.0

146.8

Source: State Statistics Committee of Azerbaijan

Conclusion

In terms of globalization and integration of the world economy the light industry (in particularly in developing countries) plays a considerable role in:

• economic and strategic security

• rapid capitalization of national economy (thanks to high rate of capital turnover)

• removal of social tension (thanks to high urbanization ratio, ensuring employment and improvement of living standards of poor people).

Taking into account the fact that the government implements special programs:

• unimpeded development of small and medium business in textile and light industry, international and domestic trade of consumer goods,

• private-state partnership in the field of big business

• formation of developed infrastructure of field development, first of all cluster format.

Turkey may serve as an example of such an angle, which develops the light industry by combining different strategies.

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