Garments & Apparel - Medellin leads Colombia’s push to export textiles

By: | at 08:00 PM | Channel(s): International Trade  

Colombian textile companies are pouring tens of millions of dollars into new mills, betting that a US free-trade deal will give Colombia’s jeans and underwear long-term access to the world’s top market.
Boosting exports is key to President Alvaro Uribe’s plan for keeping the country solvent over the next few years while fighting a guerrilla war and reversing the 60% poverty that feeds the conflict.
“Export or die,” says Luis Villegas, president of Colombia’s National Association of Entrepreneurs (ANDI). “That’s what we have in front of us.”
Medellin, once known as the violent domain of 1980s drug king Pablo Escobar, is at the center of Colombia’s effort to trade its way to a more stable future.
Textile and apparel production accounts for about $3 billion per year countrywide, with 40% of that coming from the province of Antioquia, where Medellin, a city of more than two million people, is the capital.
Textile company Fabricato Tejicondor says it is hiring 600 people this year in the Medellin area and expanding production facilities to the tune of $65 million by 2005.
“This is our own money, which we are betting on TLC,” said company Vice President Jorge Malabet, using the Spanish initials for Free Trade Agreement.
The free-trade deal, expected to codify the benefits that Colombia receives under the short-term Andean Trade Promotion and Drug Eradication Act, will take effect early in 2006 if negotiators keep to their schedule.
Coltejer, a nearly 100-year-old Medellin-based textile company, is putting $32 million into a new denim plant to open in April. It will focus on supplying the United States.
“We expect to make more investments like this after TLC is signed,” company President Carlos Beltran said.
The plant will transform raw cotton into denim and require 300 new full-time employees.
Beltran said Colombia’s apparel companies are well-placed to compete with Chinese exporters because they can supply the US market faster and with a surer sense of US style.
“After TLC is in place we expect to attract foreign investment in the thread, textile and apparel sector of about $300 million per year compared to $60 million in 2003,” Colombian Vice Minister of International Commerce Juan Ricardo Ortega said. “Increased taxation will go hand in hand with increased investment.”
International creditors, who buy and sell based on the fiscal health of the countries, say they will feel more comfortable holding Colombian bonds once free trade is in place, said Jose Cerritelli, a Bear Stearns debt strategist.
The country is next due to meet with US trade negotiators in San Juan, Puerto Rico, in mid-September. The accord is being negotiated along with Peru and Ecuador.
Colombian exports have hovered around 16 or 17% of gross domestic product (GDP) since 2000. This year they should be about 15% as the domestic economy expands and the high value of the peso against the dollar cramps the country’s international competitiveness, Villegas said.
But neighboring Venezuela, flush with oil dollars, is expected to continue increasing its demand for Colombian products, restoring Colombia’s 2005 export percentage to about 17% of GDP, Villegas said.
“Then we should be able to jump to about 20% of GDP with TLC starting in January in 2006,” he added.
Benefit of the doubt
Uribe’s hard-line policies have reduced violence associated with the country’s 40-year armed conflict.
Colombia’s economy should grow four percent or more this year. But Wall Street fears the government will struggle to pay its debts in years to come if Uribe cannot push through tax and pension reforms.
Some Uribe supporters privately express doubt that he can get the reforms done while expending political capital on a constitutional amendment that would allow him to run for a second term in 2006.
The uncertainty has not stopped international investors from lining up to buy Colombian sovereign bonds this year, boosting total returns six percent versus a 3.8% rise in JP Morgan’s E

American Journal of Transportation