75,000 jobs at risk as high lek makes Albania’s fashion industry uncompetitive

75,000 jobs at risk as high lek makes Albania’s fashion industry uncompetitive
Albania has a large clothing and footwear manufacturing sector that primarily serves nearby Italy's fashion industry. / Mariya via Pixabay
By Clare Nuttall in Glasgow November 27, 2023

Around 75,000 jobs are at risk in Albania as the high exchange rate of the lek against the euro is making Albania’s fashion industry exports uncompetitive, the Pro-Eksport association has warned. 

Albania has a large fashion and textiles industry with numerous factories that import materials which are then turned into partially or fully finished garments or shoes then re-exported. Italy, just across the Adriatic Sea, is a major market.

However, data from statistics office Instat show Albania’s exports have fallen sharply this year. The latest figures, for October, show a 4.3% year on year decline, with the biggest contributor being the textile and footwear sector that accounted for -3.6 percentage points (pp) of the overall decrease.

Exports dropped by 8.6% y/y during the first 10 months of the year, with textiles and footwear accounting for -1.2pp. During the same period, the steepest decrease in exports was to Italy, falling by 9.4% y/y. 

Earlier this year, the statistics office attributed the fall in the value of exports to a combination of the rise of the lek against the euro that has made Albanian exports less competitive, along with the fall in prices on world markets. 

Pro-Eksport held a press conference on November 24 to highlight the plight of companies in the fashion and textiles sector. The aim of the press conference was to protect made in Albania products and the workplaces of the 75,000 employees in the sector. The organisation represents 840 businesses involved in the production of clothing and shoes. 

The council also published an open letter to Minister of Finance and Economy Ervin Mete and his deputy Endrit Yzeirai, as well as State Minister for Entrepreneurship and Business Climate Delina Ibrahimaj. 

“Association Pro-Export Albania wants to express concern about a development that has been happening since the beginning of 2023, with the difficult situation and the resulting closure or slowdown of the entire production chain in our factories. The clothing and footwear manufacturing sector is going through a very alarming situation,” said the letter posted on the association's Facebook page. 

It referred to a marked decrease in orders and a fall in production for export, linked to the “high exchange rate, rising costs, lack of liquidity, amortisation of production plants and a host of other problems that this sector has”. 

The manufacture of clothing and shoes accounted for over 38% of Albanian-made exports in 2022, according to Pro-Eksport. 

“The manufacturing businesses in the sector have already started to reduce the production lines, some others have started closing businesses, as the costs while waiting for the situation to change are high,” the letter said. 

Stronger lek

The association said the main cause is the “strange” strengthening of the lek, and criticised the government for failing to respond to industry concerns. 

The lek has risen sharply against the euro since early 2022. After staying above ALL120 to the euro for the previous few years, it rose as high as ALL100.49 — just above the psychologically significant ALL100 mark — in July, and as of November 27 stood at ALL102.43 to the euro. 

The high lek had the positive impact of helping to rein in inflation, which was among the lowest in the region in 2022. However, it has been damaging for exporting industries, which include farmers and food exporters as well as fashion and textiles. On the other hand, the higher Albanian currency did not dent foreign tourists’ enthusiasm for visiting the country, which experienced a record summer season. 

The hike in the value of the lek has been attributed to several factors, including the large amount of foreign currency on the market, resulting from the rise in tourism revenue and an increase in remittances.

Important sector 

Commenting on the role of the ‘facon’ sector, Pro-Eksport said: “The sector has an important weight in the economy, in employment and exports, the awareness of the responsible institutions is required, above all to keep the production machines running and to preserve the jobs and not to have a social impact in the near future,” the letter said. 

Albania’s strength in this area dates back to the communist era, when textile production and garment manufacturing was one of the most important sectors of the economy, with state factories supplying the local population and producing for export. The Kombinat Stalin Textile Mill in the outskirts of Tirana employed over 2,000 people in its heyday. 

Today, Albania is no longer a major textile producer, but the ‘facon’ industry has developed thanks to Albania’s low costs and its proximity to Italy, one of the world’s fashion capitals. Italy has a large Albanian diaspora and is the country’s top trading partner. Typically, clothes and shoes are exported almost complete to Italy, where Italian workers add the final touches and packaging, allowing the products to go out to the shops with the prestigious ‘Made in Italy’ label. 

Pandemic slump 

The damage to the sector from the high lek follows a turbulent few years for Albania’s ‘facon’ industry, which was badly hit by the pandemic as well.

During the initial lockdowns, the clothing and textiles sector suffered sudden demand and supply side shocks. The initial disruptions to supplies from China, followed by factory shutdowns in Europe and elsewhere as the pandemic spread around the world, was accompanied by a slump in demand as people stopped going out — and to a large extent stopped buying new clothes. 

The burden fell especially hard on companies and their employees in lower income countries — among them Albania — supplying Western markets.