What is happening with footwear in Latin America?
Organized by the National Chamber of Footwear of Ecuador -CALTU- a new meeting of ACCAL -Agrupación de Cámaras del Calzado de América Latina- was held virtually -via Facebook Live- on June 29 and 30, where they exposed different industrial leaders under the slogan "Sharing strategies to reactivate the Latin American sector."
After the opening of the event by the president of CALTU, Lilia Villavicencio and greetings from the Vice Minister of Production and Industries of Ecuador, Carla Muirragi, the executive director of the host entity Luis Montero was in charge of the presentations of the different exhibitors.
At the end of each day, Jorge Pérez and Calixto Peñaloza, from the Ecuadorian chamber, made an executive summary of the various topics discussed by the exhibitors.
The event had an important live audience and reproductions.
The leaders' presentations were descriptive, indicating data and basic aspects of the situation of each of the industries in their respective countries.
The effects of the pandemic and the different strategies proposed to overcome adversity were presented, as well as the support actions of entities and governments for the sector.
Main market data: the national production of footwear, which in 2019 was 251 million pairs, fell to 165 million in 2020, as a consequence of the pandemic. Guanajuato was the state with the highest production of footwear with 132 million in 2020. Internal consumption, which in 2019 was 331 million pairs, in 2020 fell to 219 million. Per capita consumption fell from 2.7 pairs in 2019 to 1.7 in 2020. Mexico is the 9th world producer of footwear and the 15th global consumer. Exports in 2020 decreased to 18.7 million pairs, 14.9% less than in 2019. Imports, which in 2020 were 72.8 million pairs, were reduced in 2020 by 28.6%.
Among the different points that make up the strategy for the reactivation of the footwear industry are: increasing innovation and strengthening the value proposition, promoting a culture of own design; standardization and standardization of parts and components of footwear, such as soles and lasts; incorporation of new technologies, eg. automatic cutting, digital systems, etc .; strengthen professional and human development structures; promote sustainability practices and job training, and develop greater collaboration between producers, among others.
They request more funding for working capital and technology acquisition, although they highlight the support received from the municipal and state government, not from the federal government.
Its location in the north of Central America, on the border with Mexico, represents the gateway to the United States market. They currently have 17.3 million inhabitants, with a per capita GDP of US $ 4,619.
There are 741 footwear producing companies: 65% MSMEs, 26% medium and 9% large, that manufactured 25 million pairs in 2019. Due to the effects of the pandemic, in 2020 production fell to 18.7 million. While the jobs that in 2019 were 60 thousand, in 2020 they were reduced to 35 thousand. In 2019, exports reached US $ 32.6 million to more than 15 countries, while those of 2020 had a growth of 6.7% compared to 2019.
For 2021, the challenge is to achieve the productive reconversion that allows increasing exports and combating unfair trade in Asian countries.
In 2020, imports from China decreased 43% compared to 2019, but it remains the main supplier, still with income at undervalued prices.
Actions to face the crisis: implement a strategic plan for companies to improve their capacities, to access new markets, expand productions, diversify exportable supply and generate jobs.
Preparation of a market study to quantify the national sector, and identify the main actors that make up the value chain, from raw materials to final products.
Within the framework of imports, the Gremial del Calzado dedicates its greatest efforts to stop the illicit trade and smuggling that seriously affects the local industry. For this, they demand referential prices, better customs controls, description of imported products and training of public officials.
Demand definitive measures from the government to prohibit imports of used footwear, due to the health risks they imply, contemplated in the WTO.
For the future, the entity and government must create conditions for the footwear industry to be more profitable, efficient and competitive, and provide greater employment opportunities, through the diversification of export markets and recovery of the local market.
Chile has historically imported footwear from abroad. Currently, it continues to manufacture a group of small workshops located in the metropolitan region of Santiago, which has 7 million inhabitants, of the total 11 million throughout the country.
The large factories and brands in Chile produce abroad, through their own designs and developments that are made in the country. In other words, the industrialists from before are now importers.
There are 3 marketing channels: large stores and supermarkets; brand chains -Ej. Hush Puppies, Glove-Gacel-; and international sports brand chains. The pandemic caused repeated closures in the commercial structure, to the point that at times only supermarkets were open, as essential.
Many retailers faced an oversupply of imported footwear, given the need to liquidate stocks.
The social, political and economic crisis before the pandemic, caused temporary closures of stores due to the risks of vandalization.
This situation brought the exponential growth of online commerce. In the months prior to the pandemic, virtual sales represented 6% of the total volume sold, while today it is 30% of purchases.
In 2010 there were 500 footwear factories in Chile, while in 2020 there were only 300 left. In 2010 there were 21 thousand workers employed, barely 7,500 in 2020. Total production in 2010 was 10 million pairs, while now it is 3 millions. Consumption in 2010 was 85 million pairs and in 2020 it was 68 million.
Regarding imports, in 2010 they were 85 million pairs, and in 2020 they fell to 71 million. The import record was in 2017 with an entry of 117 million pairs.
Current Chilean footwear exports are not relevant for the local industry, since most are re-exports from other origins.
In the first 3 months of 2021, the sector continues to be affected, with store closings, less consumption and imports, the outlook for sales in the second half being very uncertain. Much will depend on the health crisis, the rate of vaccination and the political, economic and social framework in a period of high sensitivity.
An important detail related to consumption is that the government has allowed the withdrawal of the Pension Funds, which has generated a large mass of money available to families, which is presumed to activate purchases.
The few local manufacturers do not have a sufficient supply. The offer of soles, lasts and components is limited. Even the leather industry allocates its productions to wet-blue exports, leaving a minimum for the domestic market.
Actions to face the crisis have reformulated the union agenda, changing priorities, with dedication to contingency. New lines of work have been defined in the medium and long term for recovery. The development strategy for FEDECCAL has focused on fostering small and medium enterprises, sharing objectives in an effective public-private dynamic and with development.
The projects for the period 2021-2023 include: the creation of a technological development center; establish a new image for Chilean leather, footwear and manufacturing, with new digital media and omnichannel; promote the design and commercialization of native and ancestral products; and manufacturing of high-end products, employing prison labor.
El Salvador's footwear industry is made up of approximately 500 companies, which are micro, small and medium-sized, and there are only 5 large ones.
Exports in the last 4 years averaged US $ 24 million per year and imports of US $ 68 million, according to data from the Central Reserve Bank.
The volume of footwear sold -formal and informal- per year reaches US $ 15 million. The direct and indirect jobs are 40 thousand, which increase in the 3 months of school production.
To develop the sector, it is currently necessary: innovation and technology; value chain with higher added value; access to competitive costs in processes and electrical energy; agile, simple and automatic procedures in government agencies; connectivity and digital logistics; access to financing and international markets; and financial and technical support for the creation of a footwear technology center.
The industry is fighting for greater control of imports of new and used footwear. The latter enter on a large scale and carry enormous health risks. The government must definitively prohibit this practice, which is not validated by the WTO.
Labeling law must be implemented for correct consumer information and to control contraband.
It is very important that the government implement clear and effective policies to support the industry so that the productive fabric is rebuilt and pre-pandemic levels recover.
The ASPCA's suggestions is that the government promote the consumption of local products, where priority is given to helping MSMEs to reduce the gap between imports and exports. The growth of the sector will have an impact on higher tax collection.
A common strategy, designed by the government and the sector, is necessary in order to provide conditions for development, and above all to establish the necessary controls for Asian imports, where the lack of control and audit that allows irregular practices is evident.
Ecuador currently has 17.1 million inhabitants and a GDP of US $ 201,194 million.
During the pandemic, employment and underemployment were strongly affected, with a 16-month paralysis. Poverty and social problems have increased, which means a very complex standard of living.
In the footwear sector, production fell drastically, and consequently employment, causing enormous losses in the workforce and in companies, many of which had to close.
The industry is made up of 3,400 production units and 118,000 workers, having produced 28 million pairs in 2019. The current figures are worrying and every effort is being made to reverse the situation.
The epidemiological crisis caused permanent changes in the sector's activities agenda. Now with the advance of vaccination, it is expected that the second semester will generate better conditions for normalization.
That is why, for the end of July, meetings were planned with the representatives of the 14 largest commercial chains in Ecuador that will allow to display products and initiate negotiations, in order to reactivate the sector.
For August, the first footwear outlet is planned in Ambato, which will bring together manufacturers and the general public to offer direct sales between manufacturer-consumer.
Another action will be the face-to-face realization of the FICCE 2021 fair next November, nationally and internationally, with the participation of manufacturers and suppliers, an important event for the sector due to its call and content, and fundamentally as a point of contact and business.
Among the objectives of CALTU is to promote links with academics. In this sense, alliances and agreements made with national and foreign technical knowledge and training entities are frequent.
The joint works made it possible to improve the level of operators and products
With the new government, an effective public-private dynamic was established, through sectoral tables, where issues related to development policy planning will be discussed. On these occasions, information will also be given on the problems of smuggling, informality and under-invoicing, which require prompt solutions.
From 2015 to 2019, the footwear industry in Argentina suffered a great setback, where 35 thousand jobs were lost and more than 1,000 factories closed, some definitely. Production, which in 2015 reached 125 million pairs, decreased in 2020 to 56 million.
The arrival of the pandemic aggravated the situation in 2020 due to the new living conditions during the quarantine, with a drop of 30.9% in production, 29.4% in imports and 30.6% in consumption, compared to 2019.
In the first four months of 2021, a reactivation was suggested but a second wave of infections arrived and consumption, marketing and production fell again. Due to physical sales restrictions, online commerce grew.
There are expectations that after the advance of vaccination the conditions will improve for a gradual normalization of the activity and the market.
Despite very positive indicators in exports from January to April 2021 compared to 2020, volumes are still low.
The strategies to support the sector are the management of credit lines for investment in technology; promote innovation, training and competitiveness together with national and international entities; as well as marketing and digital commerce, and adding added value to the design for product differentiation, among others.
Regarding commercialization, EFICA DIGITAL was launched, a platform that makes the Argentine offer of footwear visible in the local and international market.
Regarding foreign trade, controls on imports continue and we encourage exports through trade fairs and missions, currently virtually.
The renewal for 5 more years of the anti-dumping against Chinese footwear is in progress.
Due to the decline in smuggling, informality has grown. As a result of the depreciation of the currency and the exchange difference that exists between the official and parallel dollar, smuggling stopped being profitable and favors the appearance of clandestine and informal workshops, protected by the lesser existing controls in pandemic, with lower costs, for not paying taxes.
We collaborate with the authorities to eradicate this phenomenon.
Among international actions, within Mercosur we are working to reject the repeal or reduction of the 35% Common External Tariff. We also remain attentive to the proposal to introduce a zero tariff from the Brazilian government for footwear from Vietnam and Indonesia, which would be very detrimental to the block manufacturers.
Taking the European model as a reference, the suggestion is to work with a more regional criterion and put together a joint strategy, bearing in mind that Latin America is the second largest shoe producing region in the world. Promoting greater interrelation between countries, encouraging intra-regional trade and common defense.
Sector data: production in 2020 was 763.7 million pairs, which represented a drop of 18.4% compared to 2019, when 935.5 million pairs were manufactured. The workforce employed in 2020 was 247 thousand direct positions, 8% less than in 2019.
The Brazilian industry is made up of 5,600 companies, which in 2020 exported 93.8 million pairs to 170 countries worth US $ 658.3 million. It is the fourth largest producer of footwear in the world, after China, India and Vietnam.
Due to the pandemic, transformations took place in the industry. One of them was the increased use of new digital tools in marketing. Although the official ABICALÇADOS platform for contacts and business has been operating since 2015, since 2020 CALÇADOS DO BRASIL is another virtual alternative for national buyers. In 2020, an agreement was made with the US platform JOOR that enables international B2B sales (company-company), through which in the last 12 months more than 47 thousand users entered the site 58 thousand times. Peru and Colombia are among the countries with the highest visits, with 160 thousand page views.
In 2020 and 2021, more than 800 virtual business rounds were held, in the months of August and November 2020, and May 2021, which meant sales of 310 thousand pairs, worth US $ 4.7 million. They were carried out with Russia, the United Kingdom, Latin America and the Middle East.
Participation in international hybrid events, such as Sourcing at Magic and Micam Milano.
Physically, Brazilian companies will be present at the Las Vegas, Atlanta and New York fairs, with the support of APEX, the official export promotion agency.
At the international level, work is being done to ratify the free trade agreement between Mercosur and the European Union, since Europe is currently the destination for 20% of Brazilian footwear exports and this volume is likely to increase. Another joint challenge with the other Mercosur countries is to request that the respective governments maintain the Common External Tariff of 35% for extra-zone products. Finally, it is requested to exclude footwear from an eventual trade agreement with Vietnam and Indonesia, where productions are massive, low-cost, with a high rate of job insecurity.
The expectations for 2021 are to grow in production between 10 and 14% to reach 840 or 870 million pairs. As a consequence, direct employment can increase between 4 and 7%. For exports, an increase between 10 and 15% is estimated to reach an average of 105 million pairs.
The situation of the country and the footwear industry in particular is an example of the wrong economic policies maintained by the government for 20 years. So that you know what not to do or repeat.
In 1998, 80% of footwear was of national origin, while 20% was imported.
After a long time there was a very tight exchange control where the management of foreign exchange was done by the State. This is not bad in itself, as long as the official and parallel dollar have similar values. In this era of tight control, the state had a lot of money and expanded subsidies. This was manageable until the price of oil began to fall, and the situation changed: the official dollar cost 50 bolivars while the parallel reached 500 bolivars. The gap became very large and it was not even possible to speak of a free exchange rate. Thus, the government could not avoid price increases and inflation soared, which at the end of 2020 reached 3,000%, according to figures from the Central Bank of Venezuela.
To control inflation, a new price control law was created, where the value of products could not be increased. High inflation versus price controls resulted in shortages. Given this, the government understood that trade had to be freed and opened the doors to imported products.
Thus, 3 years passed, where imported footwear entered with tariff 0, without paying VAT or customs expenses.
Thus, the national footwear industry had to fight against high inflation, which affected purchasing power and caused a significant drop in consumption.
With the arrival of the pandemic, the industry spent 4 months without working, without any incentive or financial support, because the government monopolizes the liquidity of the banks. The activity was declared non-essential, within its own work system 7-7, with cycles of 7 days of work and 7 days of quarantine.
During the 4 months that the industry was paralyzed, imported products continued to enter without paying tariffs.
According to the latest survey by CONFINDUSTRIA - Venezuelan Confederation of Industrialists - the use of installed capacity in general industry is 18.3%, while in the footwear sector it is 7% on average.
Among the recent achievements, it has been achieved that as of June 1, footwear that enter the country pay the 35% tariff, in addition to VAT and 2% of nationalization expenses. This will help, but the recovery process will be slow because the imported volumes have been very large.
The proposal is that to amortize costs, joint developments are analyzed, referring to lasts, soles and various components, with the participation of the countries, to achieve their own and competitive products, and thus face Asian imports.
As an institution, ACICAM is going through a process of strong restructuring, as a consequence of the incidents of the pandemic in the sector. From 360 associated companies that it owned, it was reduced to 110. Administrative staff had to be reduced, from 30 employees to 10. We have managed to overcome many obstacles and solve different slopes.
The impact of the health crisis on the Colombian leather and footwear industry in 2020 is estimated to have caused the closure of approximately 2,000 companies throughout the country, with a loss of 34,000 jobs. In that year, some 15 million pairs were stopped and the decrease in consumption was 29 million.
The main government measures to support the sector were: payroll and salary subsidies for 5 months, for those who show an 80% impact on their activity; banks began to grant loans to small and medium-sized companies through the government guarantee fund, and other solidarity subsidies. Some of the companies that were unable to access these benefits were due to previous financial problems.
The internal support for the partners was the restructuring of the union to overcome the difficult moment, and not to charge the membership fee for 3 months. We promoted participation in business meetings and virtual fairs through the Corferias platform, where important results were obtained.
Another action was the joint work carried out with DIAN and POLFA -Customs and Fiscal Police- to control smuggling, which due to the pandemic worsened significantly.
Since previous months, our next IFLS + EICI face-to-face fair has been scheduled from August 3 to 6, for manufacturers and suppliers, at the Corferias site in Bogotá. It is certified by the Secretary of Health and the Mayor's Office of the city.
There is a general consensus that the event will spearhead so that the union can show itself, do business, and start a recovery process.
The essence of the situation of the footwear sector in Peru is unfair competition from imports. This has marked its evolution in recent years.
From 2006 to 2019, footwear imports multiplied 23 times. The peak was in 2019 when 53 million pairs worth almost $ 500 million entered.
In 2020 when the pandemic hit, production and imports fell by about 30%. On the part of imports, the decrease of 30% in value corresponded to 9% in quantity. This reflected a lower average price, but meant a greater competitive impact for national production, in terms of pairs.
Since 2013, national production has shown a decreasing volume, which was accentuated as of 2017, displaced by the greater presence of imported footwear, which occupied more than 50% of the supply in 2019. Most of the products come from China and Vietnam .
The volume of footwear exports from Peru is very low and does not reach 5% of imports. The main destinations are Chile and the United States. In 2019 they were for US $ 20 million and in 2020 for less than US $ 6 million.
The problem in Peru is very similar to what happened in Chile, where trade was opened, but unfair competition was not taken into account. Here, the highest tariff is 11%, while in countries like Colombia and Mexico it is between 30 and 35%. So the level of defense is very different.
The government's footwear purchase programs from small national producers are insufficient with respect to the damage caused by irregular imports.
For some Peruvian exporters, there are countries in the region with very complicated para-tariff barriers. In Mexico, for example, containers with footwear have had up to 4 inspections before reaching the buyer, or very abusive origin evaluations.
Anti-dumping measures in Peru are of relative validity, because they do not apply to all footwear. From 2012 to 2018, for products with anti-dumping, the amounts decreased, while footwear with textile uppers, without anti-dumping, increased their income by 150%.
Customs inspection is insufficient. To make dispatches faster, controls are minimal. Of the total containers arrived, only 4% have a documentary inspection, while the physical inspection is even less.
The sector is working so that there is a change in attitude and awareness in the government, so that definitive political decisions are made, to face unfair competition. Protection is not requested, but fairer conditions for the national industry. We believe that the new government will take measures on imports, through different tools, responding to the clamor of the most affected sectors, including footwear.
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