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Textile Sector May Benefit from Crisis

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MANAGUA– Despite hemorrhaging thousands of jobs as a result of slumping exports overthe past 15 months, Nicaragua’s textile and apparel sector could stand to benefitfrom the U.S. financial crisis in the mid-term, according to industry leaders AlreadyNicaragua’s beleaguered textile sector is starting to show signs of rebound.

Exportsare projected to grow by 11 percent in the second half of the year, reversing anegative growth trend during the first six months.

“Ifwe could end the year with zero percent growth, that would be great,” said CarlosVargas, president of the Nicaraguan Federation of Free Trade Zones.

Lookingahead, Vargas said, Nicaragua’s textile and apparel sector, which was given preferentialtreatment under the Central American Free-Trade Agreement with the UnitedStates (CAFTA), could expect a significant boost from shifting industry trends followingthe crisis.

“Whenthe crisis first hit, U.S. retailers were stuck with five times more clothing inventorythan they were used to,” Vargas explained. That made many companies rethink howthey do business.

Asa result, Vargas said, the new trend among U.S. retailers is to purchasesmaller and quicker orders for spring, summer, fall and winter clothing lines,while avoiding stocking inventory altogether. That means Central Americantextile manufacturers, who can process, sew and deliver a purchase order in 17to 22 days, suddenly have a strong market advantage over their competition in fartherflung China and Asia, which can take up to months to deliver a similar order.

Andwithin Central America, Nicaragua is considered the most competitive market, dueto its cheap labor costs – well below the minimum wages of El Salvador,Honduras, Guatemala, and Costa Rica, according to the Economic Commission forLatin America.But Nicaragua isn’t singing victory yet.

Theinitial impact of the economic crisis, coupled with domestic political issues,has inflicted an early beating on Nicaragua’s textile and apparel industry,which has lost some 27,738 jobs – or 31 percent of the industry total – sincethe beginning of 2008, according to the María Elena Cuadra Movement of FemaleWorkers and Unemployed. Most of the affected workers in the industry are women,many of whom are single mothers.

Atotal of 23 textile businesses have closed their doors in Nicaragua since the beginningof 2008. The María Elena Cuadra Movement predicts another three textile plants,totaling another 920 jobs, could close before the end of the year.

That’san enormous figure for a country with 88,600 textile jobs, and only 400,000 formaljobs in the entire country.

ProNicaragua,the government’s official investment-promotion agency that was responsible forbringing much of the free-zone investment to Nicaragua in the first place, hasplayed an active role in diagnosing the problem and applying a tourniquet.

“Partof the problem was government bureaucracy, part of the problem was lack of predictabilityin terms of labor costs and part of the problem was the global economicdownturn,” said Javier Chamorro, executive director of ProNicaragua. “So whatwe can do is to work on government policy that makes for a better environmentfor the investors, and we have been trying to correct issues where government bureaucracyhas been the obstacle.”

Andthe government has responded, Chamorro said. Earlier this year, the government streamlinedits bureaucracy by becoming the first country in the region to set up aone-stop shop for free-trade registration and permits. The government alsoestablished a three-year labor agreement on minimum wage and labor conditions,to make the industry more predictable for everyone involved (in the past,minimum wage was renegotiated every six months).

Thegovernment’s stimulus efforts and the country’s competitive edge are alreadybearing fruit. So far this year, 12 new textile plants – mostly Korean – haveset up shop in Nicaragua or been approved to do so in the near future, resultingin the creation of 8,576 new jobs.

Chamorrosaid that despite “perceptions that the government of Nicaragua was not friendlyto investors in the free zone,” its efforts to stimulate investment andstreamline business processes speak for themselves.

“Thecompanies that are here are now able to be more efficient, and by beingefficient they are able to better withstand the economic downturn,” Chamorrosaid.

Plus,he added, the success of these businesses is also the success of Nicaragua.

Whenbusinesses do well here, he said, “they offer us success stories to attract new

investors – andwe are already seeing a pickup in the interest of companies looking to investin free-trade zones here.”

Asthe country’s tattered textile industry stitches itself back together,Nicaragua – with a bit of hard work and a touch of good luck – once again findsitself in the curious position of turning crisis into opportunity.

“Nicaraguais going to be competitive in textiles for the next seven years,” Vargas predicts.

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