YEMEN'S TEXTILE INDUSTRY IS HANGING BY A THREAD

C O N F I D E N T I A L SANAA 001860

SIPDIS

SIPDIS

STATE/EEB/TPP/ABT FOR GARY A. CLEMENTS, COMMERCE/ITA/OTEXA
FOR MARIA D'ANDREA, WHITE HOUSE NSC PLEASE PASS TO USTR FOR
CAROYL MILLER, NEA/ARP FOR NATASHA FRANCESCHI

E.O. 12958: DECL: 10/01/2017
TAGS: ECON ETRD KTEX YM
SUBJECT: YEMEN'S TEXTILE INDUSTRY IS HANGING BY A THREAD

REF: A. SECSTATE 114799


B. SANAA 1343

Classified By: DCM Angie Bryan, per reasons 1.4 (b) and (d).


1. (C) SUMMARY: Yemen's textile and apparels industry is
small, comprising 5,000 employees. Exports are virtually
non-existent. Foreign imports account for almost all
textiles sold inside the country. No protections exist for
Yemeni textile manufacturers, the textile industry has
received only nominal government support, and one of Yemen's
six textile factories has already stopped production. Future
prospects for the Yemeni textile industry seem bleak. END
SUMMARY.

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TEXTILE PRODUCTION SMALL, BUT STABLE
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2. (U) Yemen possesses a small textile and apparel
industry. In a September 17 meeting with Econoff, the
General Director of the Foreign Trade Office at the ROYG
Ministry of Industry and Trade, Fadhl Mansour, stated that
there are only six factories: three public and three
private. Two of the public textile factories are located in
Sana'a (one of which is operated by the Yemen Economic
Cooperation (YECO) and one other is in Aden. The three
private textile factories are owned by the al-Hotami,
al-Rajawi and al-Aqil families (all in Sana'a). Ownership of
the al-Rajawi company is divided between the ROYG (20%) and
the private sector (80%). Yemen's textile industry employs
at least 4,700 people out of a total population of twenty-two
million.


3. (C) National figures on the value of total textiles and
apparel production in USD value are unavailable, but post was
able to obtain figures for the private al-Rajawi Yemen
Textile Industry Company, which sold USD 1.2 million in
school uniforms, army ware, kitchen fabrics and bedsheets in
2006 and USD 800,000 during the first nine months of 2007.
Production of school uniforms and kitchen fabrics has
increased by 15 percent in 2007 compared to 2006. Production
in the al-Hotami factory is very minimal and production in
one of the public textile factories in Sana'a stopped
altogether in late 2006. (NOTE: The ROYG Ministry of
Industry and Trade (MOIT) has not been tracking data on total
industrial production in USD value, the textile/apparel share
of Yemen's imports and exports and total manufacturing
employment. However, the MOIT Foreign Trade Office is in the
process of being established and will collect these
statistics in the future. END NOTE) According to the World
Bank, total industrial production in 2005 accounted for USD
5.13 billion, approximately 35.4 percent of Yemeni GDP. In
the industrial production category, manufacturing accounted
for only USD 667 million in 2005, 4.6 percent of GDP.
Figures for 2006 and mid-2007 are unavailable.

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NON-EXISTENT EXPORT MARKETS
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4. (C) The vast majority of Yemeni textile production is
earmarked for its domestic market. Yemen's export of
textiles and apparels is limited to only one country:
Ethiopia. The General Director of the Yemen Textile Industry
Company, Nabil al-Rajawi, told Econoff on September 10 that
his company has a branch in Ethiopia which produces bedsheets
and school uniforms. His company's exports to Ethiopia have
been declining. In 2005, the Yemen Textile Industry Company
exported only 25,000 school uniforms and 50,000 bedsheets to
Ethiopia. In 2006, his company exported only 12,000 school
uniforms and 18,000 bedsheets. Yemen currently does not
export any of its textiles to the United States. Al-Rajawi
desires to expand exports of his company's textiles to other
countries, including the United States, but emphasized that
Yemen will need to join the World Trade Organization in order
for this to be possible and that his company will need to
receive technical assistance and training on international
standards, best practices and ways to enter and compete in
the international marketplace.

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CHINA DOMINATES DOMESTIC TEXTILE MARKET
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5. (U) Yemen continues to face stiff competition from
textile and apparel imports, especially from China. Mansour
noted that Yemen is a member of the Arab Free Trade Area
(AFTA),but this arrangement has not benefited Yemen since
this has led to a flood of imports from the region "which has
left Yemen with a negative trade balance." According to
Mansour, ninety percent of textiles in the Yemeni marketplace
comes from China, Indonesia and Malaysia, while only ten
percent comes from indigenous Yemeni firms. Chinese have
undersold Yemeni products in the market. Mansour observed
that "whereas Yemeni-produced traditional mawaz (skirts) cost
YR 4000, Chinese-produced ones cost only YR 600." Al-Rajawi
added that the low price of Chinese imports prevents Yemeni
companies from raising their own products' prices, which in
turn prevents them from offering higher salaries to Yemeni
textile workers. This problem has become more acute as
textile workers have demanded higher wages as a result of
rampant price inflation of basic commodities (reftel B).
There are currently no protections against the flood of
Chinese imports. Protections exist under the new Foreign
Trade Law which Parliament passed in July 2007, but the ROYG
has yet to devise by-laws to implement the law.


6. (C) Yemen's struggles in the textile industry are
illustrated by one government-owned factory which stopped
production in late 2006 due to mismanagement. Mansour said
that the factory was established in 1962 and that China
funded both its construction and equipment purchases. The
factory used to produce military and school uniforms, but now
these products are imported from China. Nevertheless, the
ROYG continues to pay the factory's 1,200 employees even
though the factory is no longer producing. (Note: al-Rajawi
told Econoff that the Yemen Textile Industry Company has
partnered with the Yemen Economic Corporation to try to
rejuvenate the factory. End note.)

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LIMITED GOVERNMENT SUPPORT FOR TEXTILE INDUSTRY
-------------- --


7. (C) Beyond this measure, ROYG support of the textile
industry in Yemen has been minimal. Al-Rajawi complained
that the ROYG still has not built roads or electricity
infrastructure for his company despite repeated demands. He
also argued that the ROYG should subsidize the textile
industry in order to help it break even in the face of
Chinese imports.

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COMMENT
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8. (C) Yemen's textile industry has limited growth
potential. Compared to oil and natural gas, agriculture and
fisheries, the textile and apparels industry accounts for a
very small percentage of Yemen's GDP. Most Yemeni textile
production is geared for domestic consumption and its export
markets are virtually non-existent. Post does not expect
Yemen's textile industry to grow dramatically in the near
future, or to be competitive in the international
marketplace. A significant amount of investment and capacity
building will need to take place first. Whether the new
Foreign Trade Law can protect domestic industries from
Chinese competition remains to be seen. END COMMENT.

SECHE