Brief review of Belarusian textile and clothing market Minsk, 2013
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2
I.
Textile and clothing market of Custom Union
II. Belarusian textile and clothing industry III. Business doing in Custom Union or Serbia
The market of Customs Union (CU) of Belarus, Kazakhstan and Russia accounts for 5% of the global clothing market World Population, %
2% CU
Global GDP, %
3% CU
Global clothing market, %
5% CU
Source: UNCTAD, CIA
Belarus has the greatest perspectives for the development of clothing production among the countries of Customs Union The structure of knitwear and garment companies and production by country in the CU in 2011, % and mln units
57 (47%)
1% 12%
Comments •
Only about 12% of textile and garment enterprises of the Customs Union are located in Belarus, but they produce 47% of knitwear and 35% of garment of total CU output
•
Russia's share in the knitwear and garment industry is likely to decrease in the near future according to the experts, decline in the production of knitwear and garment will reach 25% in 2012 according the inertial scenario of development of the knitwear industry in Russia, the industry will disappear by 2016
•
Accession to the WTO is particularly dangerous for the development of the garment and knitwear industry in Russia
16 (35%)
87%
Garment Knitwear production production
Russia
Kazakhstan
Belarus
total losses of the industry after Russia’s accession to the WTO may amount to 70 mln Euros Source: news and analytical portals
I.
Textile and clothing market of Custom Union
II. Belarusian textile and clothing industry III. Business doing in Custom Union or Serbia
Textile and clothing industry is the basis of Belarusian light industry and accounts for 3% of total industrial production in Belarus The share of industries in total industrial production, % Comments
4%
96%
Light industry
2%
Knitwear
1%
Garment
1
11% 4%
Other private Private with foreign capital State
Source: Belstat, Bellegprom
More than 2250 enterprises operate in Belarusian light industry
•
Approximately 86% of enterprises are fully or mostly private
•
More than 200 of them operate in clothing industry
•
The largest producers are members of the concern Bellegprom, that unites 114 enterprises and manufactures 80% of the total production of light industry
•
Privatization of 7 large enterprises of light industry is planned in 2012-2013 – JSC Baranovichi Cotton Production Amalgamation “BHPO”, JSC Slonim Wool Spinning Mill, JSC Belfa, JSC KIM, JSC “Industrial and Trade Amalgamation “Polesie”, JSC “Kobrin Sewing Factory “Lona”, JSC “Kozhevnik”
Other
2010 The structure of light industry companies by type of ownership, %
86%
•
Textile and clothing industry in Belarus is quite profitable and cost effective Profit from sales of the textile industry, mln Euro +68%
Profit from sales of the clothing industry, mln Euro +84%
37,5
95,0 46,8
43,1
2008
2009
56,5
2010
2011
The profitability of textile industry, %
19,4
17,8
20,4
2008
2009
2010
The profitability of clothing industry, % 21,3%
19,3%
8,5%
8,9%
8,9%
2008
2009
2010
2011
2011 (E)
9,4%
11,0%
9,8%
2008
2009
2010
2011 (E)
Significant growth of the textile and garment industry was caused by the shifting of Belarusian companies from domestic to foreign market due to falling purchasing power in Belarus because of economic crisis
Source: Belstat
Clothing and textile industry in Belarus is developing steadily and sufficiently resistant to the effects of the crisis The volume and structure of knitwear, mln units +1%
63,8
57,0
54,9
54,6
18,8
18,7
36,1
35,9
42,2
37,6
2008
2009
2010
2011 (E)
Outerwear
21,6
Underwear
19,4
The volume and structure of garment, mln units +6% -18% 16,9 3,0
13,9
2008
13,9 2,6
14,7 2,6
15,6 2,8
11,4
12,1
12,8
2009
2010
2011 (E)
Outerwear
Another Clothing
Comments
•
Production of knitwear is increasing by 3% annually despite of crisis
•
Underwear accounts for about 66% of production and traditionally has good price-quality ratio
•
Garment production suffered more from crisis but is recovering quickly Garment production decreased by 18% in 2008 Post-crisis growth in garment production is 6% per year Source: Belstat
Large-scale investments in the modernization make it possible to forecast the increase of production capacity and improvement of quality Depreciation of the active part of fixed assets in textile and clothing industry, %
2005
Comments •
One of the main problems of textile and clothing industry of Belarus is a high level of deterioration of fixed assets
•
In 2006-2015 total investment in textile and clothing manufacturing will reach 0.7 bln Euro
•
Nearly 80% of planned in 20112015 investments will be spent on modernization of equipment
•
Implementation of this plan will allow to reduce the level of deteriration of fixed assets almost by 60%, to increase production by 50%, to accelerate the development of new products and to improve the quality of goods
86,7%
2010
61,4%
2015
39,0%
Investment in the modernization of enterprises, mln Euro 348,0
264,0
Other 20% 80% Equipment
2006-2010
2011-2015 Source: Bellegprom
The relatively low cost of high-skilled labour is one of the competitive advantages of Belarus Average monthly wages in the textile and clothing industry in Belarus, Euro
277
253
180
163
2008
307 213
203
2009 2010 Textile and clothing Average
Comments •
Average wage in the textile and clothing industry is almost 1.5 times lower than the average wage in the country
•
The average annual wage growth is about 6% During the same period of time salary in China increased by 2.6 times
•
Given that the level of wages in Belarus is one of the lowest in Europe, the quality of work staff is acceptable enough More than 90% of the population have at least secondary education
276
2011
Cost and qualification of staff in different countries Population 110 with 100 secondary education, % 90
Kazakhstan
Serbia
80
Belarus
USA
EU
Russia
China
70 60
India
50 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 Source: Belstat, Rosstat, Unctad
16,5 23,5
Average wages, euros per hour
Belarusian textile and clothing industry is moderately consolidated, so manufacturers have limited market power Top 5 manufacturers of clothing*, 2011, % Kupalinka
Komintern 8 marta Slavyanka 4% 4% Elema 4% Elis 9% 3% Kim 2% 2% Svitanok
Comments •
More than 200 companies operate in clothing industry
•
Total sales of clothing manufactures in 2011 amounted to 330 mln Euro
•
The top-5 clothing manufactures generate around 35% of sales
•
These companies are in Bellegprom’s subordination, which is partly owned by the state and unites more than 20 key industry manufactures
14%
58%
Others
* Based on annual sales value Source: Belstat, Bellegprom
Famous world brands and foreign governmental organizations have already been cooperating with Belarusian manufacturers Company
Specialization
JSC “Slavianka”
• the manufacturer of men's, women's, children's clothing
JSC “KIM”
• the manufacturer of underwear and hosiery
JSC “Alesia”
• the manufacturer of knitted garments
JSS “Mona”
• the manufacturer of women's outerwear, work and special clothing, knitted garments
JV “Dinamo Programm Orsha” Ltd
• the manufacturer of sportswear and equipment for tourism
Source: Official sites of the producers
International relations
International companies and financial institutions have had success stories in privatization of Belarusian textile and clothing plants Company
Specialization
Description of the transaction
JV LLC “Milavitsa”
• underwear and lingerie
• In 2000, the EBRD and ILUNA acquired 12.68% stake • In 2006 a controlling stake of 59.8% was sold to an investment fund Alta Capital Partners (Estonia) for the purpose of creation a production holding
JSC “Baranovichskaya shveinaia fabrika”
• children’s clothing • men’s and women’s clothing
JSC “Motex”
•
special clothing
• In 2011, the company “Charm Prime” (Russia) acquired 26% stake in order to expand production
• In 2009 Tutaevskaya Shveinaia Fabrika (Russia) acquired 70.5% stak e
* Euro was introduced in 2002 Source: Official sites of companies, news summaries
Total investments 1 mln USD*
16 mln Euro
1,2 mln Euro
0,2 mln Euro
I.
Textile and clothing market of Custom Union
II. Belarusian textile and clothing industry III. Business doing in Custom Union or Serbia
Belarus: key facts
General political data
Lithuania
Russia
Official name Form of government
Republic of Belarus Presidential Republic
Head of State
Alexander Lukashenka / from 1994 Economic Indicators (2012E)
Belarus Poland
Currency GDP (nominal) GDP per Capita (nominal) Inflation rate (dec / dec)
Belarusian Ruble (BYB) $ 56 bln. $ 5 800 21,5 - 23%
Minsk 6 regions
Unemployment rate
0,7%
Average wage per month
$480 ($340 – in 2011)
Russian, Belarusian
Transport Infrastructure
Population
9,465 mln.
Population density Area Climate
46 persons per sq.km.
Highways’ system
Developed structure of highways, length 82900 km
Airports
International airport Minsk-2, airports in regional centers
Ukraine Overview Capital Administrative structure Official language
207,600 sq. km. Continental
In 2012 the economy is expected to continue its recovery after currency crisis of 2011 Consumer Price Index, dec/dec, %
21,5
6,6 12,1 13,3 10,1 9,9
-49%
Growth in inflation was caused by sharp depreciation of national currency
108,7
8,0
Refinancing rate, %, end of the period
2005 2006 2007 2008 2009 2010 2011 2012
Exchange rate, BYR’000/USD, average
45 23 11
10
10
12
14
11
2005 2006 2007 2008 2009 2010 2011 2012
Average wage, USD, end of the period
+85% 8,4 2,1
2,1
2,1
2,1
2,8
8,2
3,0
2005 2006 2007 2008 2009 2010 2011 2012
260
310
370
460
530 380
480 340
2005 2006 2007 2008 2009 2010 2011 2012
The refinancing rate will be 0-2 percentage points higher than inflation
General taxation regime in Belarus is very favorable for foreign investors, developing export oriented business
Subject to taxation No taxation Belarus
Eligibility requirements
• Size of investments: >EUR 15K
• Investments in selected industries: light industry included
18
20
20
Corporate Income Tax 20
VAT
Custom duties Land Tax
- 0% for export - 0% for imported equipment
- import of equipment for the project
- 0% for 5 years of construction period
Real Estate Tax
Russia
Kazakhstan
1
12
- import of equipment for the project
• 0% for 7 years
• 0% for 7 years
Source: national investment agencies
18
Serbia • Investments: EUR 0,5M • 50 new jobs created
10
18
• 10% for kids clothing • 0% for export
1,5 0,3 2,2
• Exemption available (10 years) - investments EUR 8M - 100 new jobs created
- import of equipment for the project
- Included in Real Estate tax
3,0 0,4
Belarusian incentives for investors: Free Economic Zones (FEZ) • 6 FEZ in each region
Taxes and payments not paid
• Total investment of more than EUR 440M from over 40 countries
• VAT on sales turnover of goods/services for export.
• Over 350 resident
• Tax on real estate owned or leased in the FEZ
• Conditions of application: no less than EUR 1M investments, no less than 70% of exported good production
• Custom duties and taxes on finished products exported outside the Customs Union territory
FEZ ‘Vitebsk”
• VAT, custom duties and taxes on raw materials, equipment, finished goods in free customs zone (FCZ), created on FEZ territory • Land lease agreement fee • Fees for recovery of agricultural and (or) forestry production losses caused by the withdrawal of lands
FEZ ‘Minsk” FEZ ‘Grodnoinvest”
FEZ ‘Brest”
FEZ ‘Mogilev” FEZ ‘Gomelraton”
• Employment authorization fee for foreign employees Taxes and dues paid on preferential terms. • 0% profit tax on all goods and services for 5 years, then a 50% discount (not more than 12%) • 10% VAT rate on the turnover of import substitution goods on the territory of the republic
• 0% land tax rate for 5 years during construction The incentives are guaranteed not to change for 7 years! period Source: Ministry of Economy
Belarusian incentives for investors: small, medium-sized towns and countryside • 187 urban settlements small and middle-sized towns, mostly located no more than 20-50 minutes‘ journey from industrial centers • Conditions of application:
organizations, established since April 1, 2008, located in places with a population less than 50 ths. people
Preferences for small and medium-sized towns • 0% profit tax on goods and services of domestic production for 7 years • 0% real estate tax on the cost of property located in small and middle-sized towns, countryside for 7 years
• exemption from local taxes for 7 years • exemption from compulsory sale of foreign currency for 7 years
• exemption from contributions to innovation funds for 7 years • no customs duties and VAT on manufacturing equipment and components imported in order to make a payment in the authorized fund • exemption from the state duty payment for special permission (license) delivery and changing for 7 years • the abolition of non-tariff regulation measures, of foreign trade monopoly concerning certain goods, of the requirements of bargaining on the commodity exchange, as well as non-application of any other government regulation measures, etc.
Belarusian special taxation regime is especially favorable for businesses with relatively small (Eur 1-10M) required investments and limited amount of newly created jobs (up to 100) Free economic zones (FEZ) Belarus Eligibility requirements
• Investments: Eur 1M • Investments: Eur 3M • 70% of export • 100 new jobs created
• 0% for 5 years • 9% after 5 years (50%of usual rate) • Cap - 12%
Corporate Income Tax
• 0% for export • 0% for equipment investment contract required
VAT
Serbia
Custom duties for import
• exemption for equipment, raw materials, goods in FCZ
Land Tax
• 0% for 5 years for construction period
Real Estate Tax Duration of preferences
• 0% for 10 years - Eur 8 M investments required
• 0%
• exemption for imported equipment and raw materials for production for export
Special economic zones (SEZ) Kazakhstan • Businesses according to the SEZ rules • 0% • 0% for imported equipment and raw materials for production for export
Russia • Investments: Eur 10M
• 15,5%
• 0%
Small cities and countryside Belarus • Residence in small city • 0% for the first 7 years • 20% • 0% for import of equipment as a contribution into authorized capital
• exemption for imported machinery and equipment • exemption for equipment, raw materials, goods in FCZ
• exemption for imported machinery and equipment • exemption for equipment, raw materials, goods in FCZ
• exemption from customs duty for import of equipment as a contribution into authorized capital
• 0%
• 0%
• 0% for 5 years
• 0,36%
• 0%
• 0%
• 0%
• 0%
• 0%
• 7 years
• During the lifetime of the FEZ
• During the lifetime of the FEZ
• During the lifetime of the FEZ
Source: national investment agencies
• No restrictions
Belarusian incentives for investors: Investment contracts
The investor has the right to:
The investor is exempt from:
• Build premises, as set by an investment project, in parallel with the preparation of construction documents
• Land lease agreement fee
→ the investor doesn’t need to wait until all papers are processed in all stages of construction • Lease a land without holding an auction. During the investment agreement period the lease payment shall not exceed the price defined of the moment of signing the investment agreement • To nominate engineering, contracting and subcontracting organisations without tender. • Apply the full volume tax deduction of VAT, paid when purchasing goods (works, services), property interest regardless of VAT amount, calculated for the realization of goods (works, services), property interest
• Land tax or rental payment for the period of building projecting and construction • VAT and profit tax payment in view of gratuitous transfer of state-owned ownership to the investor
• Innovation fund payments for the period of the investment contract • Recovery of agricultural and (or) forestry production losses caused by the withdrawal of lands • Entrance customs duties and VAT payments when importing equipment and fabricated parts for the investment project realization • Employment authorization fee for foreign citizens hired to carry out the investment project and temporary residence authorization fee for foreign employees
Source: Ministry of Economy of the Republic of Belarus
Doing business Report Description of the report •
Doing business report is a research assessing regulations which affect domestic firms in 183 countries
•
The report has been published by the World bank group on an annual basis since 2004
•
In this report the World bank group publishes the ease of doing business index based on the average of 11 factors or sub indices
•
The index is based on the study of laws and regulations, with the input and verification by more than 8,000 government officials, lawyers, business consultants, accountants and other professionals
•
During 2009-2012 Top 3 countries has not changes their positions in the report ranking (Singapore, Hong Kong, New Zealand)
Belarus takes quite high positions in international ratings, assessing the ease of starting and operating business Doing Business Report 2012
Belarus
Customs union
Kazakhstan
Serbia
Russia
69
120
47
92
Starting a Business
9
111
57
92
Dealing with Construction Permits
44
178
147
175
Registering Property
4
45
29
39
Protecting Investors
79
111
10
79
Enforcing Contracts
14
13
27
104
Resolving Insolvency
82
60
54
113
Overall Rank
The best performance among selected countries
Investing Across Borders Indicators Description of the report •
Investing Across Borders is a World Bank Group initiative comparing regulation of foreign direct investment around the world
•
The report covers 87 economies
•
Investing Across Borders Indicators focus on 4 thematic areas measuring how foreign companies invest across sectors, start businesses, access industrial land, and arbitrate commercial disputes
•
The indicators are based on data collected through questionnaires completed by experts
•
The World Bank Group’s Doing Business project provides the methodological foundation for the IAB indicators
Relative FDI regulation indicators confirm favorable conditions for foreign investors Custom Union Belarus Investing Across Sectors Light Manufacturing
Ease of Starting a Foreign Business Strength of ownership rights index
100
78,9
100
Russia Kazakhstan
100
68,4
100
100
65,8
66,7
Explanation of Indicators
Serbia
•
Indicator measures restrictions on foreign ownership of companies across sectors
•
Indicator measures time, procedures, and regulatory regime for establishing a local subsidiary of a foreign company
•
Indicator compares economies on the security of legal rights they offer to investors interested in purchasing industrial land Indicator compares the ease for parties to design arbitration proceedings in chosen manner and conduct fair, predictable arbitrations
100
84,2
100 •
Ease of process index
Extent of judicial assistance index
79,0
76,1
70,4
71,4 •
84,9
76,6
78,2
90,2
The best performance among selected countries The best performance among Custom Union countries
Indicator compares the extent of judicial assistance to the arbitration proceedings through the domestic courts (assistance before, during, after arbitration proceedings)
Heritage Foundation Rating of Economic Freedom Description of the report •
Index of Economic Freedom is an annual guide published by The Wall Street Journal and The Heritage Foundation (public policy research institute) since 1995
•
The report covers 184 countries
•
The Index measures 10 economic freedoms grouped into 4 broad categories (Rule of Law, Limited Government, Regulatory Efficiency and Open Markets)
•
Each of the freedoms within these 4 broad categories is individually scored on a scale of 0 to 100 using statistics from the World Bank, the IMF and the Economist Intelligence Unit
•
The 10 factors are averaged equally into a total score for a nation
Rating of Economic Freedom demonstrates that Belarus has as much regulative restrictions, as other countries do Belarus
Russia Kazakhstan
Serbia
Business Freedom
71,3
65,1
72,9
56,5
Trade Freedom
80,4
68,2
79,6
77,9
Fiscal Freedom
86,6
82,5
90,4
84,1
•
•
• •
Labor Freedom
77,0
63,5
88,7
Overview of Belarusian Business Freedom Rating
40,0
63,7 72,1 70,6 71,3 58,8 55,7 54,4
68,7
2005 2006 2007 2008 2009 2010 2011 2012
Indicator measures the tax burden imposed by government Indicator measures various aspects of the legal and regulatory framework of a country’s labor market (minimum wages, layoff, etc.)
Overview of Belarusian Trade Freedom Rating
69 +31,3
Explanation of Indicators Indicator measures business environment Indicator measures the level of tariff and non-tariff barriers that affect import/export
67
67
52
67
80
80
80 +28
2005 2006 2007 2008 2009 2010 2011 2012
The best performance of countries concerned (100 means the freest country)
Good results were achieved by Belarus not only in economic development but also in development of human potential Serbia
Belarus
Russian Federation
59
65
66
68
Human Development Index
0,766
0,756
0,755
0,745
Life Expectancy
74,5
70,3
68,8
67
Average years of schooling
10,2
9,3
9,8
10,4
GDP per capita, $, PPP
10 236
13 439
14 561
10 585
Human Development Index not connected with revenues
0,824
0,785
0,777
0,786
Human Development Report 2011 Aggregate position
Kazakhstan
Our contact information: Minsk
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For more detailed information contact: Oleg Chanov
Oleg Andreyev
Andrei Matsiavin
Managing partner Management Consulting
Managing Director, Investment Banking
Business Development Director
34-210 Sherbakova Str. Tel.: +375 17 266 95 04 Mob.: +375 29 652 20 14 Fax: +375 17 230 95 11 e-mail: oa@enter-invest.com
34-210 Sherbakova Str. Tel.: +375 17 266 95 04 Mob.: +375 44 744 99 68 Fax: +375 17 230 95 11 e-mail: oa@enter-invest.com
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