But the real value is likely double that. A September 2011 study commissioned by the US Agency for International Development estimated official statistics undervalue the industry by 50 percent.
What is the key factors for the success of this Central Asia country when it comes to garment and textile? These are its geographic position, cheap labor, and international trade agreements. Small business owners import inexpensive textiles from China and export finished garments to markets across the former Soviet Union. A vast majority of the exports, some studies say as high as 95 percent, go to Russia.
Prior to the Soviet collapse in 1991, the local textile industry relied primarily on cotton grown in Central Asia, especially Uzbekistan. But today operations depend mostly on synthetic Chinese fabrics. Uzbek materials are more expensive because they are made out of natural cotton. From China, it’s not the best quality, but that’s why it’s cheaper, says a small business owner.
The country's red tape is its down side. A recent study published by Harvard Business School describes Kyrgyzstan’s complicated tax regime as a “barrier to formalization” for the garment industry. The May report found that though existing tax tiers favor small companies, as soon as companies grow above 30 employees, they “immediately face higher payments and a more cumbersome payment procedure.” That discourages growth.
The Harvard study estimates 60 to 80 percent of firms operate at least partially off the books. “The number of public inspections by fire departments, sanitations, labor, and many other agencies create a headache at best, and encourage corrupt activities at worst,” it says.
Kyrgyzstan’s shadow economy extends far beyond the garment industry. In July, Economics Minister Temir Sariev said between 50 and 70 percent of the total economy operates off the government’s radar, local news agencies reported.
This affects quality, says the International Labor Organization (ILO). Because the tax system and corruption discourage expansion, manufacturers are afraid to hire workers full-time. Without consistent work, employees often pick up a few skills and head to Russia as labor migrants. Skilled workers do not stay, the ILO wrote in a report published this year.
At least one other factor scares investors and hurts development: the Russia-led Customs Union. Kyrgyzstan is seeking to join the new trade group, which also includes Belarus and Kazakhstan, as much out of political considerations as economic factors. Should it join, manufacturers could face new barriers to importing raw materials from China. Should it not join, the Customs Union could squeeze out Kyrgyz exports.
Further confusing the situation, Russia joined the World Trade Organization (WTO) in August. Some economists say this development will hurt the competitive edge that Kyrgyzstan, also a member, had previously enjoyed.
Certainly Kyrgyzstan’s garment industry has promise, but it must first navigate some bumps in the road. The market trends and dynamics prompt that the demand for Kyrgyz-made garments is constantly growing. Source.