CONFIDENTIALC0NFID E N T KIA LDRe- - - - rt - - I I

FILE ELPYI

To be returned to Reports Desk immediately after use.

The confidentiality of this report must be strictly observed. It is available only to thosemembers of the Bank Group staff to whose work it relates. Any further release must be

iuboed by the department head concerned.

INTERNATIONAL B3ANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT ON

TEXTILES AND MAN-MADE FIBERS

IRAN

(in three volumes)

VOLU ME II

THE TEXTILE INDjUS IrRY

June 10, 1971

Industrial Proiects Department

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Acronyms: ICB - Industrial Credit BankI)MBI - Industrial and Mining Development

Bank of Iran'IF' - Man-made FibersRCD - Regional Cooperation for Development

(Iran, Turkev. Pakistan)

Cmlrrencv Rnuivalent! Rl1s. 7'( =TIS.tl.OORls. 100 =US$1.32

Hleasurements: All physical measurements are in metric units.

TP A TJ

VOPDrP Oh1T vVrTIT2S AIM) -MAV?J MAnP WTB7P-AW..L-J Lh. ¼1A .LJ4.LL 1 4.V .AJ .L.LJJLJLd tl4JJ AIL W V - IAM..hi~~

(IN THREE VOLUMES)

VOLUME II

THiE TIXTII; ITDUIJSThY

This report is based on the findings of a mission organized by theIndustrial Projects Department which conducted a survey or manufactureof textiles and mani-made fibers in Iran during the period September 25to October 25, 1970. mhe composition and responsibilites of membersof the mission were as follows:

Aroon K. Basak - Chief of MissionPeter A. Glenshaw - Uwan-made Fibers.James A. iqannery (Consultant) - Textile IManufacturingRoss 0. Rtunnels (Consultant)

and Robert Frazier (ConsultLmtAlternate) - Textile Demand and

MIarketing

(VOLULE; I - THE MAIN REPORTVOLUhE II THE TEXTILE INDUSTRYVOLUME III - MLI-MADE FIBERS)

Industrial Projects DepartmentJune 10t, 1971

IRAN: REPORT ON TEXTILES AND M4AN-MA.DE FT7AERS

Tnqle of (T.nntPnts

UnTiimp TTI Thp TextilP Tn,ic+try

Page No.

c

T nAr1.Vr.-4nT7TtvT) orli qm, IJUtTVY7TT.V TKTTTT.QC'V I

TT (rTp%TTrPTML nV r11tU T TnTvTflT,DV. TncmTCMr' AT.m TV7LD0TATr)TTA T

Domestic Industin,y ...... ........................ 6-Int-ernat-ional '' 1;ruMc -Urue and,4 Trends .......................... ..................1

TT'rr Th Ar.j 1,,T A Mr,ThA T'r LI,'

.I... n.aW rUtIZI. I-.a . . . .. . . . . .. . ... ... ..... ........ 2 1 . CL

Cotton .. .......... 21.Lo ....... . .L......t3Rao nl . . .. . . .* . .*.. . .I . . . . . .* . . . . . . . . . 35- J

Rayon. ............. . .. . .. . .. . ............... . .. . . 35

IV. LABOR AND MANAGEMENT................. o....... . ............ 36L a bor. O ...... ..... ...... 36Management ............ ,..............O 43

V. PRODUCTIOUJ PERFORI'4ANCE .... 46Physical Production ... ................................. 46Evaluation of In tegrated Plants .......................... .47Producti.on Methods ............................ ,47

VI. REORGANIZATION, MODERNIZATION, RATIONALIZATION ..............* 50Reorganization ........................... 50lflodernization , . . ............................................. . 51Rational]ization .............................................. 57

VII. THE TEXTILE DISTRIBUTION AND MARKETING SYSTJI................ 59DistribuLtion , .5°...............................................Marketing ................................................ 61

VIII. INTERNATIONAL COvi{PEITIVENESS ................................. 66

IX PROJECTION OF FUTURE DEMAND FOR TEXTILES ..................... 71Estimated Production and Consmiption Expenditures on Textiles 72Estimated Future Demand for Textiles ....................... 93

X. THE APPAREL INDUSTRY .............. o * .............. 128

Apparel Production in Iran ................................. 128Potential Demand for Apnarel Products ...................... 138Potential Cost Structure for Work Pants and Work Shirts .... 142

XI. FUTURE REQUIREMIENTS, PROPOSED STRATEGY AND POLICIES .......... 156Epvansion of +.h Gon+ttn necor Pyti1p Tnritrv- .=.. ====== 157

Expansion of the Woolen and Worsted Sector ................. 171PvWna-i ri of +.hc Vcn-i=. .9....i . Y....--------------------------------- 173

Expansion of the Industrialized Woven Apparel Sector ........ 175

* e

-ii-

Grand Total - Capital Investments ................... 182Strategy for Modernization ....................... .O 183Capital Requirements ........................................ 187Deconcentration ............................ 187Fxnnrts ..... ......................... 1R8

Government Policies .......................................... 192

XII. THE, MACRO-EC0N0iIC FRAMEWORK........... ........................ 200NationalIncof-me:------------------------ 20

Capital.. ...... ..................... . .... 205

XCIII. STRATEGY AND POLICIES ............................ .......... 215

Twelve Articles of the White Revolution ..................... 218'T - no S-A - -% 01 C ; ) A5.I.Il.LporlbJ ~, ±u x.-p oJ r~ 4u nLL Irld.f.L.L. I -L.L'L,y ..... .... .. . . . . . . . . . ..

Export Incentives.......................................... 220..LnUU.S U.L.LCL-L Ji~~I.................................... C-C-u

Poles of Development e ... o.p. ...... .......... .... 220

rrivaLization oi Gove ient r......221............................

ANNFaXES

Detailed Cost Sheets (34)Study Program - Rationalization of Government Textile MillsStudy Program for Handcraft/Smnall-Scale Textile Industry

REPORT ON TRYTTTLE ATNf ::IN-MJADF. FTRPRB

VOLU 7-R TT - TP-V; TFRTTTP. -T'TnTJS1TRY

ATnr.A NT 'DA CZrT,,lMI T A

Area:. I, 6 l.,ooo rPopulation: 30 millionRate of Increase: Total about 3/-

Urban about 5%Density: abo-ut 19 per x,

The Woven Textile Industry-: 171Industrialized Sector

Number cf units: Cotton/Synthetic 62Woolen 10 (plus 4 under construction)

Consumption: CottorVSynthetic .46 million metersWoolell 1.36 million meters

Per capita consumption: Cotton/Synthetic 18.2 imietersWoolen o0.54 m-neters

Production (including small-scale sector):Cotton/3Snthetic 546 m.i.lion metersWoolen 7.5 million meters (12 million

meters including 4 new units)Estimated domestic demand: 1"(80

Cotton/Synthetic 817 million meteisWoolen 3l1.4 million rmieters

Industrialized capacity: S&idndles -- Lo_oms1' 1971 .'.q

Cotton/Syrithetic 9 0 '74 i,2;o, 00 16,7b2 2., 00Woolen 0,00 760 96,200 :1,260

Emplo-yment (including estimate 'or non-_ndustrialized sector):1271 1980

Cotton/Synthetic 123,500 129,000Woolen 8.200 17L 400

Value added by cotton and woolen textile industry:l.LZ of' GN?12% of value added by industry, excluding mining.

Acronyms: ICB - Industrial Credit BankT,-TDT - Tnchistrial and >iininr/ Dfevelonmpent Bank of TIrnn.RIF - Mlan-made FibersRCD - Reo-innal Gooprat-ion for TDelopment

(Iran, Turkey, Pakistan)

Currency Equivalent: Rls. 75 = US$1.00PI I lrO = TTqf.l 9

L Alvtrn,Ll4

U. I ,-d re4

' nn mae.n 1r1vr- c o ;r, a -i; a t,- -r.-1O .. sca*tvLA UisEL2,o n.- . I4i-,' c *U& a, ;La Q.11i;,i Lit 0*-.1'- u.. ±,1 U) 4-.. La.. V(

I. BACKGROUND OF THE TEXTILE INDUSTRY

DIe DevelopmiIent PLans

Iran nas 'leerl JIULeU 10f ha-ving prou edUUU exqulse.1 Ltex tLi Ifor

some hundredls of yeairs, but these were handloom products. Mechanization oftlle textile indUSLtL- rte a:i C h ed [ Iran in 9111 hW[nllt 1 ,200-sp'ndle ,1 pur-chased from Switzerland by Sani'e-od-Dowleh was installed in Tehran. Asecondu spinning tiil was establishedin a in T Do in '111 19'i10. *No iilrtLher progress

was made until Reza Shah the Great initiated the industrialization processin the country. Tne: textile industry received great encouragement throughtax exemption, long-term low-interest loans and some control over thequantity of foreign textiles allowed to be- impOrted. Four of the millsestablished during this period commencing around 1935 belonged to theCrown. The capacity of thre industry in Iran before World War II was asfollows:

Table 1 . 1: CAPACITY OF TEXTILE MIlL.lS EEFORE WORLD WAIR II

Type No. of mil-ls No. of spindles No. of looms

Cotton 3r 222,840 2,487

Woo] 7 24,250 381

1.2 With the outbreak of World War TI the textile industry in Iranbecame virtually insulated from international competition. Quiclc profitswere easy to earn and as a result the mills were operated to produce themaximum possible otutput withoujt due regard to adequate maintenance orreplacement of worn out maclhinery and parts. The uncertainty surroundingthe political and economic future of the country dissuaded the largeshareholders from plowing profits back into their plants. The physicalcapacity and operational efficiency of the industry was thus run downconsiderably, and a weakened domestic industry found it difficult to copewith the flood of imports that entered the country after the end of WorlcdWar II.

1.3 The first Seven-Year Development Plan, which was launched in 1948,therefore provided for rehabilitation of the textile in(lustry and a total.sum of 502 million rials ($6.7 million) wEIs invested by the government inChitsazi, Tehran, while efforts were also made to overhaul and increase t:hecapacity available in the private sector. During the Second Plan (1948/1955) about 3 billion rials ($40 million) were spent on expanding andwidening the textile industry's capacity. Expenditure was also made inthe agriculture sector for increasing the output of raw cotton.

- 2 -

1.4 T'he Secondl Plan paid furthier attention to the textile industry,by setting up new plants and reorganizing some of the existinig units inthe public sector, as well as providing iunds for increasing and wideningthe production range in the private sector. Loans ma<de available to theprivate sector through the Industrial Credit 1Bank amounted to 373 millionrials ($4.97 million). As a result of the Law on the Revaluation ofCurrency Backing, enacted in the spring of 1957, an aclditional sum of 2billion rials ($26 million) was also made available to the private textilecompanies for development projects. With this assistance the private sectorinvested more than 7 billion rials ($93.3 million) (luring the Second Planperiod. A number of licenses were issued in 1958 for setting up new tex-tile mills, most of vwhich were installed by 1961.

1.5 The heavy bias incorporated in the Third Plan (1962/1968) towardspetro-chemicals, steel and machine-building industries, limited the in-vestment in the textile industry whichi amotunted only to about 362 millionrials ($4.8 million).

1.6 The growtlh in capacity of the cotton and woolen textile industrythrough the tlhree plans will be evident from the following table.

Table 1.2: INCREASE IN CAPACITY TIIROUCH THE THIREE PLANS

Number of Number of Number ofmi l]s_ spindles looms

COTTON!/SYNTHETICS

End of: First Plan, 1948/1955 41 335,840 4,337

End of: Second Plan, 1955/1962 49 631,500 14,404

End of: Third Plan, 1962/1968 54 650,000 14,200

WOOL

End of: First Plan, 1948/1955 7 24,130 381

End of: Second Plan, 1955/1962 9 33,410 611

End of: Third Plan, 1962/1968 10 40,000 760

Government Mills

1.7 As is evident from the above, the public sector in the textilelnd-ustry 'as 'largely spearlheaded the process of expans4on, and 4its rela-tLiU Lsze L. -- the industry can be jg fo the fl i

tive size in the industry can be judged from the following.

Table 1.3: RELATIVE SIZE OF THIE PUBLIC SECTOR - COTTON/SYNTTHETICS

Number of Spindles PercentageSize of the Public

Whole Industry Public Sector Sector

COTTON/SYNITIETICS

Pre-World War II 222,840 57,000 25.6%End: First Plan 335,840 67,000 19.9%End: Second Plan 631,500 125,556 19.9%End: Third Plan 650,000 128,100 19.771970 660,no0 211,648 32.1%

1.8 Until, the end of the Third Plan, there was no government ownershipof a woolen textile mill.. However, since 1968, financial difficulties forcedthe government to take over three woolen textile mills with a total capacitybetween them of 2.7 million mieters of cloth per year, representing 38%' ofpresent installed capacity in the indtustry, and 23%. of capacity that willresult from the setting up of new units already licensed.

Capacity vs. Demand

1.9 As stated earl:ier, the domestic industry fouLnd itself strugglingagainst imported products since thie end of World W4ar II and through thewhole of the First Seven-Year Plan period. During the Second Plan thegovernment further assisted the domestic textile industry by imposing pro-tective tariffs on imported fabrics, the types of which were being producedat home. While this did give the industry some immliediate relief, this wassoon lost in the economic recession of 1961/63.

1.10 In 1963 the government imposed a complete ban on imports of cottonand cotton/synthetic blend textiles which were produced by the domiestic in-dustry. The effect of this import ban was not fel.t fully for sometime be-cause of existing imiport licenses and stocks. The domestic textile in-dustry therefore continued to pass through financial straits which showeclsigns of receding only from around 1965. with a return of economic buoyancyand a tendency for d,emand to start rising.

1.11 The woolen textile industry has never been resource-based (thecotton textile industry is based entirely on cotton grown in Iran) asIranian wool is too 'coarse for textiles, and is used in making carpets.The Povernment's efforts at import substitution in the woolen industrytherefore depended entirely on imiported wool. The tariff policy forwoolen textiles has continued to revolve around a tariff protection forthe infant woolen induqstry, the majority of plants having been installedsince 1955. al=though the first woolen mi ll (Vatan) was set up way hack in1935. There is no ban on woolen textile imports, but a systenm of importIirensin' rPn1,latPs thp ininorts of tvnes of woolen textiles which are nro-

duced at home.

- 4 -

1.12 The position of thle domestic industry vis-a-vis imports and total

consumption of textiles is slhown in the following table.

Table 1.4: SHIARE OF DOMESTIC INDUSTRY IN l'OTAL HOME MARKET".1

(millions of meters)

Per Capita Indicator ofConsumption Self-sutffi-

Year Production Import Export Consumption in Meters ciency Z

COTTONN/SYNTIJETIC

1955 62 72.47 - 134.47 46.11956 67 62.61 - 129.61 51.7

1957 77 66.50 - 143.50 53.7

1958 101 62.19 - 163.19 61.9

1959 169 149.66 - 319 15.3 53.0

1960 236 126.27 0.01 362 16.1 72.7

1961 269 86.44 0.35 355 15.9 75.8

1962 304 47.46 0.32 351 15.3 86.61963 386 31.45 1.96 415 17.6 93.0

1964 429 15.44 0.65 444 18.3 96.6

1965 423 11.85 0.23 435 17.4 97.2

1966 431 6.23 0.83 436 16.8 97.2

1967 440 3.04 0.68 442 16.7 99.5

1968 453 0.86 1.91 452 16.7 100.0

WOOL

1955 1.336 2.527 - 3.863 34.6

1956 2.360 3.362 - 5.722 41.2

1957 1.420 3.663 - 5.083 27.9

1958 1.740 4.050 - 5.790 30.1

1959 2.100 6.500 - 8.600 0.41 24.4

1960 3.000 4.000 - 7.000 0.33 42.9

1961 3.400 4.100 - 7.500 0.34 45.3

1__9 4.000 2.600 - 6.600 0.29 60.6

1963 4.400 2.600 - 7.000 0.30 62.9

1964 4,50n 3.400 - 7.900 0.33 57.0

1965 5.000 4.200 - 9.200 0.37 54.3

1966 5.600 3.800 - 7.400 0.37 75.7

1967 7.000 4.000 - 11.00 0.42 63.6

1968 7.100 n900 - 10.00 0.37 71.0

1.13 The knitting industry has been crnfined to hosiery; underwear and

sweaters and is composed of principally of small plants employing in the

most part less than 100 workers, There has recentlv been a trend to highpr

fash ioIIS.

- 5 -

1.14 A ban exists on the imports of made up apparel. The apparel in-

dustry is fragmented in Iran and practicaily non-existent as an industry.Demand is supplied by small producing units operating at the retail level

of distribution.

II. STRUCTURE OF IlL? -I!DllSTRY: DONESTIC AND 1NTLRiJATTWAI\L

A. Domestic incdustry

2.1 The textile indlustry is broken down into two maijor segments: cot-ton and blended synthietic yarns and fabrics, and worsted andl wool clotlis.The vast majority of cotton and blendled synthetic fabric plants have the[rown finiishin_g facilities and all the worsted-wool plants do thieir own clotlhfinishling. The following talble slhows the structure of the cottonI and blenld-ed syntiletics sector, excluding thie handcraft and small-scale sector.

Table 2.1 IRAN: COTTON AND BLENI) SYSTEM - INDUSTRIAL SEcCTOR1971

No. of No. of Spindle No. of Loom No. ofUnits Spindles Range Looms Range Workers

SPINNING MIILLS

Existinni Capacity - priorto recent additions 25 224,938 3,200 6,929

to18,900

Recent acdditi.ons:

Expansion - 28,200 870NMow p1lnts 3 36-200 1;120

Total 28 239.338 8;919

SPT,PJTI3(' ANn 1JIFAVTM( MTII.T.

Existin,,Ca - prior

to recent additions 32 539,516 3,240 15,783 18 39,130to to

53,(00 1,304

Recent additions:

ELxpansion - 79,350 959 5,800

Iew I L - A40)

';'o,l 3 Of-elQ6I- 1678 44 I930ilTo a kIQ 0 u- I . +4),J

Lotal Spinining ailldlSpinning and(l Weaving 62 908,204 16,782 53,849

2.2 About 66 percent of this section of the industry is divided betweenTehran and Esfahan with the remainder scattered from the Caspian area to themost southern part of Iran. The production of cotton and blend fabrics isprincipally of a coarser type and lower quality than that prociuced in themore developed countries.

2.3 A printed fabric referred to as Chit and a bleached fabric calledChelvar comprise the largest portion of the production. Chit, which has thelarger production of the two, is an inexpensive printed cloth used principal-ly by the lower income groups. Following is a comlparison of the range ofchit with print cloth commonly used in dleveloped countries.

Mleters per loom/hr-based on 707 weav-

Warp ends Yarni count Filling Ends Yarn count ing efficiency & Per-Grey width per cm. (metric) per cm. (metric) avr. pick/c.m. cent

70 to 90cm. 20.5 33.9 16.5 33.9to 26.9 to 40.6 to 23.6 to 40.6 3.90 100

Sample of Print Clotlh Used in Developed Countries

120 cm. 31.5 54 31.5 67.5 2.56 65

2 4 Chelvar which. is tihe second -most popular sloth pro4I-ced is verysimilar in construction and yarn counts to Chit except that the most popularwiLUdtlis range frorm. 9Y0 to 1 cm. with somie as wride as 250 cmL. It is a bleachtUedand starched fabric used for bed slheets, shirting, white uniforms and othervar'ous Iluinor uses.

2.5 Within thle last couple of years a demand has arisen for better fa-rics and some plants have changed to Finer fabrics. A finer fabric is usuallyone using a lighter yarn count and witll m,.ore warp and filLing ends per cr.

We believe this movement will continue as the consumer demands a better fab-ric. Less total mHette-rs will then *,e produced with the present equipment.

(See para. 2.3 showing comparison of Chit for Iran and Print Clotlh used inDeveloped Countries). Tne reduction in nmters will not be as drastic asshowvn but in several years this difference could be appreclable. For each4 extra picks per cm. thiere will be a reduction of about 1o percent in imetcrs.

2.6 This trenci wiii also affect other manur.acturing processes previousto weaving, especially in spinning w,here considerable spindles will be re-quired to manufacture finier yarn counrts.

2.7 Tlleretore consideration must i)c given to instaLling additionalcquiiprnernt as the demanid for finer fabrics increases, over andi above equip-ment for norrll growtih in the ciorTmestic nar!ket.

Wool and UTorsted Spinlnilnl ad eaavnd

2.o The worsted and woolen splinning, weavin:L and fini-;hing induistryrA -i 1 I f,.ita cy na n t- Fo r s (, ev raI v y ea rs !n ro-e-ntly 1 1i o-n urain t-t.el lic 1e nselrs to exv-

pand. Two mills lhave recently started operation; a third is expanding anda, fourthI is ,,nrlcr crrect-on.- el oloi ne i th!e. ;'re,t! since 1966.

i,nime'r nf Prodi ct-i, r,, le (-u',A,g

Year Units s Looms Workers -(meters) impiorts) (mlerers)

1966 1W 40,000 760 8,200 6,000,000 8,400,000

In process1a.rr-1071 A . 19 OQr) I f tRn "M rrirl . rno r) -

I'JLcL II I S .. .J- 1k fAWJ I A r r)r ~'rk". S U ,J'AI 2 'Jlotall 19°71 14- 522Q 910~k 114) 1,)O,n 6,(

(est.) (est.)

2.9 'ile mills are located principally in Esfahan, Yazd, Tehran, Tlabrizand KGhazvin withl tle now f pllats at Sh;;li, "osllt and antl;er slil-y south

of Tehran. fIme proposed expansion wil.l take place at a present mill located

21 epicplpo1itof b-otll tlse eitnpltsandA nle-W plan,sZ iLI* IU Iii LI U L LIlt L JlJ.' - j) 1 k.RI Lt I -L UI. 1U L1 I~.S L, 111?i; piJ.d1L~ IU LU LiL ~

mcn's wear worsted suitings. There is some worstedl ladies' wear as well as woolsystem faorics but these are in the int-1ority. hIlere is a sizable amount ofwoolen blankets manufacture(d in Fsfahan. Their production is not included inteiC above summuary.

Onxershiip

.1 At the present time the cotton-synthietic nills navinm' some sort ofgovernnient participation produce about. 149 million ineters out of a total in-dustry capacity of 412 million meters or aDOtIt 36 percent or the total.

2.12 Following is a list of thc present miills with government participa-tion. It is inow overnment policy to refrairn from any furtlier Investment inthe textile in(Lustry and thie mills nowq ihav:i.n- governmnent participation andcontrol will eventually be transferred to the private sector.

-9-

Number ofName Location Spindles Controlling Organization

Cotton and Syntlhetic Sector - Present

Chitisazi Tehran 44,212 Connected to Iran Flactories Group

Behshahr Behshalir 34 ,948 " " "

Shahi No. 1 Shahi 21,032 " it "

liontaz Tehiran 40,000 Bank Melli

Soosan Esfahan 6,064 it

Zayendehrood Esfahan 14,072 " i

Nassaji Slioush Ahwaz 20,000 Board for Support of Industries

Shahi No. 2 Shahi 30,720 Industrial Credit Bank

'Total Government Sector 211,648 32 percent of total industry

Total Industry 660,000

Worsted Woolen Sector - Capacity(million meters)

Vatan F,sfanian 1.3 Industrial Mining Bank and/or Bank Meiii

TPistaff Esfahan .6 !!

Shahi No. 2 Shah.i .8 Industrial Credit Bank

Total Government Sector 2.7 23 percent of totai industry

Total inciustry, withi currentexpansion 12.0

Investtment, Finance, Value Added

2.13 From data that was procured, total investment in the textile in-dustry as at March, 1970 would appear to be as follows.

- 1(0 -

T'ab le 2.2: TOTAL .NV[;S'lMEl.;T THE '; TlEXTl'LE iDUSITlY

(in millions of riils)

Branchi of Value of Valiic of Value of Workinf' 'fotal.Industry 1Ln ul(1 -ld i -js .j;Mclhinery Capi tail IInvestment

Cotton/Synthetic 565 2,893 11,913 3,902 24,278

Wool 307 954 1,765 1 065 4,091

Total 872 3,849 13,683 9,967 28,369

2.14 Of the above total investment of 28,369 million rials, itbout

11,786 million rials (i.e. 41.5 percent) were made available as long-term

loans from two government b)anls, Industrial Credit Bank and Bank Melli, in

addition to thie IMDBI. These loans were made as follows.

Table 2.3: LONG-TERM BANK LOCA'S TO TIE TEXTILE INDUSTr1'hY

(rials)

Industrial

Year Credit Bank Banlk Melli IMDBI Total

1961 334,454,000

1962 2,000,000 1,218,000,00) 1,220,000,00028,945,936

1963 6,700,000 1,011,000,00() 1,046,645,936

1964 38,300,000 904,000,000 99,975,000 1,042,275,000

1965 67,229,000 964,000.000 244,975,000 1,276,204,000

1966 81,SO,0()0 906.000.000 95.000,000 1.082.800.000

196,7 - 905.000.000 312.700.0()0 1.217.700.000

1968 211jL60,00O0 924.000.000 1;137.460;000

1969 69,000,000 1_n12?_00o00n 411-000-000 1;492;000000

1970 81,000, 00( 1,550o000,000 nn3 050oo0on 1 ,936 ,0n,OOn

Total rR) /Q 00 nnn a Q 00nnn n 1 nnn2 0L.Q n Y)] 11 7S SRSU WIAI v W sJ J J Xv v s \ v } X J [ >. . . ............ o-... X--X-. X-. .... *- *-,--..,,.................

- 11 -

2.15 From statistics available in Iran, it is difficult to obtain anaccurate idea of the value added by the cotton and woolen textile industry,as oresent data relates to "textiles including carpets and ghelims". Using,a ..i.de degree of approximation to segre,ate carpets and glie].ims orom tex-ti 1 es one wouldc gret the follot,itnlg hroad nictiire .

Table 2.4: VALUE ADDED BY TlE. TEXTI'LE I[NUSTRY

(in billions of rials)

Item 1966 1967 1968 1969

Gross value of output 14.0 16.6 16.1 17.2

Value added 5.9 7.1 6.9 7.4

GNI' (1959 prices) 408.9 427.1 481.3 530.8

7 of GNP 1.4 1.7 1.4 1.4

B. International Structure and Trends

International Trade and lroduction

2.16 In the nineteenth century, export of textiles generally flowedfrom the developed to the developing countries and formedl the largest itemby value in world exports of manufactured goods. In this century howevergreat changes have taken place in the structure of trade with the emergenceof Japan, India, Taiwan, Hong Kong, Pakistan and Korea as establislhedtextile producers. As a result by 1964, textiles and clothing had droppedto about 11% of the value of worldl manufacturing exports, compared with31% in 1913.

2.17 The post-war trenid in iml)orts anid exports of apparel cloth bydeveloping countries is reflected in tlhe following table.

- 12 -

Table 2. 5: IMll'ORTS AN) EX-PORTS OF CLOTH B3Y DEVELOPN(N; COUN4TRIES

(thousnllid tons)

Imports Exports1954Cotton 418 134Cellulosic 148 12Syntlhetic 2 -Wool 12 1

580 147

1960Cotton 375 169Cellulosic 154 15Synthetic 4 -Woo1. 15 1

548 185

1964Cotton 358 220Cellulosic 1;'2 17Synthetic 25 3Wool 13 1

-18 241

1966Cotton 363 274Cellulosic 124 20Synthetic 29 4Wool 14 1

530 29

Source: UNIDO

2.18 In the all-cotton sector, exports from developing, countries broughtbhouit the Lonn-Term Arrangsement regarding International Trade in Cotton

Textiles under the auspices of GATT. ''his agreement, valid from October1962 for eight years and now extended- provides that. as between partici-

pating countries, the quotas established in virtue of import restrictionsshall be progressively incre,asol so as to reach nrdeterminod levelshv

the end of the period of its validity.

2.19 Between 1954 and 1960 the developing countries substantially in-creased their s!:are in world production of apparel cloth. Because thedeveloping countries produce .I muchi smaller proportion of synthetic blend

- 13 -

clotli - the fastest 2row7ing sector in thie develoned countries - theirshare in world production of all apparel cloth increased only slightlybetween 1960 :and 1966. 'The follnwin- tahle shoixm tit- s,rowth in nroduir-tionof apparel clothi in the 11eveloping and developed countries.

Tabhle 2 .9 T-'I',TT' M'A'T:) PiPOl)1jCTIT)! OF APPAPRP fl.OT'!-

(t!:ous:.n tons)

e U A' V pi Iot*trics vl . V o Uld

Far East Total Countries Total19B54-Cotton 128 1,775 4,026 5,801Cellulosic 21 1 1 1 170Syntlietic - 2 182 184

17ool 25 1,0 7/17 ,75

174 2,10 6,506 S,610

1960Co0 Lt.o n 18) 2,1, I,4 6,5IU .It 1I C,I jqq4 0, 0)

Cellulosic 30 283 1,842 2,130)yntILIe tic ^ 2)4 I G6

Wool 34 1 43 835 1,023243 2,877 7,512 10,389

Cotton 230 2,979 4,139 7,118Cellulosic 55 366 2,286 2,652Synthetic 5 31 1,543 1,624Ivooi. 45 158 3V92 1,050

343 3,584 8,860 12,444

1966Cotton 275 3.,179 4,283 7,467Cellulosic 56( 369 2,230 2,599Synthietic 6 133 2,173 2,306Wool 45 160 927 1,087

332 %841 I,61 I 13,459

Source: UNIDO

- 14 -

2.20 From 1939 to 19)64 the number of spindles (decreased 25 percent inthe U.S.A., 45 percent in the EEC and '() percent in the U.K. I,y contrast,the number of spindles in the developliing, countries about double(d over thesame period, indicating a major geogrllphical re tistribution of capacity.T'lhe number of looms also showcd rou;,ghly the same picture. The following;table shows the positioni reached in 1966.

Table '.7: E)lUTIPMEN'I' INSTALL.I.) IN 'I'II:: C(TTI'oN SICTOR: 1966

7:i l.ion ;pi tidIes s rhousand Looms

OeVeloPing RegionS 37.4 (38Z) 708 (36%)

Africa (2.6) (63)

Near East (2.3) (49)

Far East (23.9) (396)

Latin America (8.6) (200)

Develoed Countries 60.8 1,253

2.21 In thle developed countries, siince the early 1950's spinning andweaving productivity has increased by 70 to 9( percent. For techinicalreasons discussecd below thec increase in productivity in developing countrieslhas been lower, so that teli geograplical shiift in location of machiinery hasnot been followed to a simi lar extent by a chanre in shares of world pro-ductioni .

2.22 Thirty-eight percent of thie cotton/synthetic spindle capacity inthe developing world led to 29.8 percent of the world's production, indi-cating average efficiency in the developing world of 78.4 percent of thatof the dlevelonecl world.

Trend s in Technol os v

2. 23 lor Mdt-nr the first time In' the present cŽntLiirv there lhas been amajor breakthrou),h in technology starting in tlhe early fifties. The netro :,l 1 It i z ton nimzP 1- t-h 'ninnillc 'Inel tJ.nViinc: nrnrcCtqP. vast1v more prnrizirtiup-

Withi metallic clothed cards, the throughlput lhas risen from 5 kg to 20 kg perhour. Combing output has 1rrad from 4 kc, to 20) kg per liour. In 1950ring spinning frames operatedI at 7,50)0 rpm; the currenit operaltion is at129,00 to 15,0(00 rpm. A ne,., co-ICent Of Jflf ir, i'. iv n n,:

machiine to spin by centrifugal force. Wiarping machines currently operateat iCUCLh *lt5Lgher speeds. Synthetic S4,4a-

better warps for the weaving thus improving efficiency. lhe loom ihas hadtle henLefit of dramatic. 'Iesl.gn cih;ngis. Tho shittleless loors feed weft

- 15 -

yarn directly from large packag,es, anrd can weave two fabric widithls simul-taneously. Propulsion of the weft is achieved by air or waterjet or oilthe rapier or yarn carrier pri.nciple. These developments permit a verysliarp rise in weaving speeds, althoughli witlh some loss of machiine ver-satility.

2.24 Tihese technological 'levelopments make thie new inidlustry mikchi iorecapital intensive, an(I can be justified if tile vastl.y increased output canbe marketed at a profIt, an(l high labor costs can be cut down. Witil theseinnovatioLis it is est-LmatedI that the capital investment per worker i.s $15,000to $25,000 in Western Europe and $50,000 in thie U.S.A.

2.25 At the same time the new tecimnoLogy means that the installationof 10,000 spin(lles wil.l yield 3,000 tons of yarn, which in many developingcountries wouild supply tlhe annual text-ile needs of over 1 million people.Great study is thierefcre required bel1ore any decisions are taken on whetherthe new technology sliould be followed in developing countries to acihievecompetititve costs of production and an acceptable return on investment.

Economies of ;cale

.2G A theoretical study published by the lhconoinic Commission for L.atin.America (ECLA) investi;:ated the signi ficance of economies of scale in in-tegrated snirning and weaving. Onh the basis of the older tecliinology econo-nmies of scale anneared as follows: unit Droduict:ion cost increases sharplyas one dIrops below 6,000 spi.ndles; around 6,000 spindles cost is about 6to 11 percent igihiIer than for a mmill with 100,000 spindles; bearing in mindthe cost of raising capital for large--scale plants, the optimum economicsize woulcl have uinit costSi abhoiu 3 nporcent to 4 nerrormt hi_vhor than tleminiinum, andl he at aroundt 18,500 spindiles.

2.27 I.CLA also studied tJhe ecornoniLes of scale flowing from the new tech-nologv and the relevant data is Liven in the fol lowi mii tnhle.

- 1 6 -

Table 2.3: DATA F01F, INTOGAMTI1) COA1(iON ?4JLLS.i.5 Iil LA-i- AERICA

Technology ctirrent in

19.50 1960 1965

Capital investment (51,000) 4,451 5,658 6,507

i4umber oF spi ndles installed 13,6(0 15,,2(( 14,800

Number of looms installed 534 530 524

Yarn output (tons p.a.) 2,265 2,643 2,895

Cloth output (1,000( meters) 16,800 19,600 21,500

Number employed 668 446 315

Cost of clotlh ($ per 1,000 meters) 176 156 149

Returns on investment (%) 28.1 32.6 33.3

Source: E1,LA

2.28 The textile industry lhas been traditionally labor-intensive, thusiipar tr a' 11A.. .. - I- . . .. 1 -t I.I. ..-. I-. 1 ". ~--

ililpar t Lg a [itul Vd LIL,ta,L to cok-tLLtrt L WihLL 1w walge, rates. A

ihas also prevaile(d in counltries endowed with cotton or wool as a domiesticresource allowintL th-em to save trans-port .osts since ikLpuritieUs removed afterarrival at the mill account for up to 20 percent of the weiglht of a cottonDale, and 50 percen-t of tlhe weight of greasy wool. On the othier haand do-estic

cotton could largely restrict the ranges of fabric produced, as long staplesihouid not be wasted on coarser fabric, and short and Inedium staple atteiiiptedto be usedl for making finer clotli. Since thc U.S.A. is the only developedcountry thaL grows various stapLes of cottonI andi is Lherefore enldowed WitLha resource advantage, it is interesting to study its performance in thetextile industry for comparison withi t'e dteveloping worid.

.. Both grey and integrated mills ini the i!.S.A. were previously oflarge size. Instances of mills containing 100,000 spindles and 2,000 loomswere not uncommon. The current idea of economic size is much1 smaller - about500 to 600 looms and 15,000) to 30,000 spin(lles - depending on the counts ofyarn and types of fabric produced. hlie higher wage rates in the U.S.A. havedriveni the industry relentlessly towards greater productivity and efficiency.Stvylk fabrics liave made both grey and integrated mills realize that batchorders are uinlLkely to be large, and that effic jency demands that niot iaorethaln a certain family of fabrics be produced]. I:t hlas also been accepted thata streamlined organization yields a smaller, :iiore efficient managerial unit.

- 17 -

Capital and Production Cost

2.30 Conparative data have been assembled by us on the textile industryin Iran. We have traced from actual data the history of maniufacturinlg avery popular print cloth in grey state in the U.S.A. from 1950 to 1970, toexamine the cost and selling price per yard and the capital iinvestment re-quired under technology thlat was current at different ti.mes. Table 2.9sshows the capital investment required in current prices.

Table 2.9: CAPITAL IHVESVMItNT

Print cloth 39", 30 x 30, 4 yds/lb

174,375 yardls per week (12(0 lours)8,544,375 yards per year (49 weeks)

1951 1962 1970$ $ $

Building 1,585,200 1,503,460 1,522,290Mrac!i nery 1- 542,574 2,076-176 2-728R693

W4orking capital 625,555 625,555 625,555

Total 3,753,329 4,210,191 4,936,533

Looms 500 D)raper E 333 Draper X-2 303 Draper X-3I2ul.lIQ s - Sq. Feest 15,520) 120,677 (-24%) 101,436 (-36%)

Jumber of workers 208 119 (-4:3%') 111 (-47,,)

Investment per worzer 13,0(0 35,4 $45,00Investmenit per yard $0.440 .0.492' (+12%'I) $0.530 (+32-7)

12'return on inves tment (t.450,h08 $50,2t 599,392)IQ'

12%' return on investmentper yd. f.ln 7 'za 0. :n. no

2.31 We have deliberately held thic output constant, to show clearly thiepro ,ductiv1t .. iee thouh gW4 . . .- te hno g. 'AF}. -fFl ..1 A. .@. 1 a c . I1ac .hi ecopi/ '* UL; Li.V L Ly ,IL-a I IiV CU. IIL t J 611

6L VW £ Iub LLLIna.'xLq <;y * , .. .IL LUI.I L ULLd LI* CCOLV

nomic size today would still be about 500 to 600 looms, producing 14 millionyarcls nIInuaClly, instc adLL off i U.J 5.iiLL JLoL yarLUls iLn 1951. Tl[e rcL-iLLCtion iLn tLhebuilding size has absorbed an inflat:ion in building costs which were $10,9 125iU and $I5.00l pe)r .q. foot in 1951, InfU' ound 1 70 respectlively. "out

hialf thie increase in maclhinery costs is also perhlap)s ascribable to inflationand, thL I t.o t eIIICL'III I LO e 'LI-olUgy . 'lic2 tiI number oUf worklers hias lialveila I , Le-irLLproducti.vity has doubled. 'Tlme ,greater capital intensity over 2'0 years wouldre,qilLre a pric - increment of' ccLuts pet- yzirdl at 12 percent return, wiliciamounts to 9 percent of thc sellin,g price.

:'p:'r,¢ t(MiCulo il c; II )i. l tllle lrll l li ittfrll ofwe prifUI C C p r i C prit. 1-r to Lii thirough tii s pattenoLte hCo YI oy a) 1h idlnVsti,ljiLt 11,aS ildld.L(d A)1 U1) retl.a- <;l). As shown ILi Tablv. 10,thie i ; . tex L i L iL li ls coveredh by r;uvc s1 .c Id e h oi t -oind Ing the o(;tCtf COversio01 ill curretdL [l,aL1rs al .ilt,m;t constantlll. t ro 1o9') to 1970, and LtheCyiroppcd ,i thei r se l i ng1 prirIc tsi iI Il y. I h( ;abol I t toni ot the two pr ire sy.siteLi

ltor raw cotlouii li tbe II.S.A. (the douiciit lIc prIcc was Iiihur t2r ti L the-l exportl-ice) ';-Ive a (o.;t advabtage iLt thi i mIerely C*ouL rval Lcd the dUdil:ionjl :.-'Oit:S VOtq- ired i.i i reliirni for tIe lar,er Livcst;ineut.

Tabie I2.i1 (): it STORY (o TIfl I C(I;Jri 39 Lij :x 80 4.( )0 YARDS Pl.R POUND

COST ANO Si:AJ.F(; PRCE l: P:,:' YA1tD 1951--1 970

I teLn Nov .1951 Miay 1962 Feb.197()

Cotton cost per yardJ $ .1007 $ .0906 $ .0688

Labor cost per yard /1 .'550 .0429 .0.583lverhiead cost per yard-- /2 .046 5 .0418 .0469

Fri iigC itemiis cost per yardL- - .(038 .0(036 .0059

Total cost per yard $ .2060 $ .1789 $ .1799

Sel I iing, nrice per yard $ .2300 .1837 $ .2225

Conversion cost lper yardl $ .1(53 $ .0883 $ .1111

Average wage per liour 0., $ 1.1523 $ 1.5655 $2.2878Frin lge benefits per hour'!- .0796 .1314 .2315

Total per hour $ 1.2319 $ 1.6969 $2.5193

(ottotn c:ost per poulil .$ .3665 $ .3535 $ .2700

Yards per mwani per hiour 20).95 36./49 39.24

Yards per wecl (120 fiotirs) 174,375 174,375 174,375Production and mALIntetiance

enl)loyees 208 119 111

/1 [flnludes sizilln, packiilg kiiaterrll.l;,, loss oni s;econitds aintl selling, expense

p us regular overhead itelS.

-/2 Inichid(les social secii i.ty and uieml-oplymeuLt tiax, vacation and holiday pay.

2.33 The most Importanit point that u,iergles from this performance is that

a doubl.iitg of tie wasge and fringe beTnefit cost per lhour was completely absorb-ed hv increased prodluctivity withou t any noticeaI.-le rise in labor cost peryard .

- 19 -

2.34 This Is clearly what the developing countries will liave to contendwith. In our example, the U.S.A. is still left with a raw material cost whichis 3R mpercent of tntal c-nst and a labor ostwhiih is 36 npreent of totl1cost or 53 percent of conversion cost per yar(d. A developing country'sonrnirZrtuini tu c-ost otf ca--rce, c,nni tat1l isc !!i gher thwin the cost of cann tal i n an

advanced country. In adoptin;g the new technology a developing country willneed to cover iagher rat- of return 01 its in-yestmoent, t n,l will reIcrh

a cross-over point whien this additional return equals the labor cost benefitit en40ys. If -e assume that a developing country ill nee to e.-.rn . returnof 16 percent per annum on its investment, this will require a further in-

cre mentl -cv r a of 9 cents pe, n-,h (r,U4ni, .- ,,,r Ii.S. evxnmpl nr 1 .9

percent of total cost of produiction.

.'.35 rhe relatively hiighi labor cost per yard of fabric that persistsevtn. in tle new technology keeps LLit: optlons o)'en L L'I 1 el sLtIL - for LtLa

advanced countries to further lower the nuLmber of workers required, and'Ior ,ne develin&-, countries oL re,i,.ain CAJ-pLet [ LiLve w.ithi liLeiieUliL t ch--

nology and lower wage rates. The results thiat should he achieved by adevelopinLg country tlhat a-dop-ts nzodern technology with its lower wager-ates and reaches 80 percent efficiency against 88 percent to 92 percentIn the U.S. ;., hwave beeii estaiblished by us in LiCe case 0. iraii wIILere Li1U

application of Tnodern technology to a type of work; shirt fabric whiclh is1 ~ ~ A~IIC -- .. -- -CCII

alreauy produced extremneiy competitively, woulu iurL1Uer i-umpr uvc UII icency

and reduce costs as indicated below.

Table 2. *I: PRE'i!tE.T A1. iU') P*OtETIA L L, [ li lICOS1 tS lk/'.NAND LITE.RNATIO)N.NL COMPARI SONS

Work slhirt fabric, 1OO, cotton, 39-1/2"8;4 x 4 4, 24s warp I rii.1iin

(in U1.S.cents per meter)

Iran LTrkey L.S.Av. U.K. Germany Japan Hong kiiPresent Potential

Raw material 8.11 8.11 9.85 9.77 10.09 10.39 10.09 9.87Process material 3i.i7 3.17 5.1 5.92 6f.84 7.96 8.09 8.07Labor 4.75 2.25 2.87 6.79 10.25 10.49 4.80 5.29)Overhead 13.88 10.24 11.56 12.72 14.49 16.13 11.75 8.80

29.91 23.77 30.19 35.20 41.67 44.97 34.73 32.0.3

2.36f The capital cost of the mo(dern miill planned for Iran, without workingcapital, would he $5,782,350 representing $0.2356 per n)eter of cloth produced,per year, against '0.3598 per meter of cloth produced by thie old existingindustry. This assunies of course that the desired efficicency will be reachied,hbtt shiows what the Imlo(dern technology coul(d achieve by way of reducing costs of

production in developing couintr:iLs, assuming thieir wage rates do not climb tco

- 20 -

2.37 As the gap between unit costs in developed vs. developing countriesnarrows down, the cost of freigldt on raw cottoni would assume critical implortanct,and leave resource-endowcd countries like the U.S.A. on tlhe one hland, ancd irail,Pakistan, India on thle otlher with inhereiit advantages. A counitry like ilorng Kongwlhichi now worlks 303 days in the yeAr, 1May finLd it difficult to retain its edgeon costs.

Thle Future OutLlookl

2.38 The dramatic developments in thle knitting sector in the last fewyears threaten to cLhn) e the competitive situation sharply. Discovery of thebonding process, texturized yarn, and particularly double knits, has impartedgreat stability to kniits, and helped them to invade the wearing apparel forboth ladies and gents. Thlere are hardly any ecoinomies of scale in knits, andestablislhnments could be very small witlhout losing efficiency, which is ofinterest to developing countries. The capital investment per ton of knit peryear has bcen estiii1 ated for Iran at $4.50. It is believed that by 1930 knitswould account for lhalf the fabric ColnSLMed, the othier half being taken up bywovein fabric.

2.39 Textile manufacturers in the U.S.A. largely produce wearing ap-parel for direct sale to the organized apparel industry. This industry ishighly labor intensive in developing countries and economically efficientwhere it exists. It seems likely that the textile industries in developingcountries generally will increasingly tie up with low-cost domestic apparelindustries and be competitive in tlhe interniational, market.

2.40 This whole subject is one which deserves much greater study indepth, and slhould this be undertaken there is no doubt that the resultswould be b)oth interesting, and rewarding.

- 21 -

III. RAW! MATERIIALS

A. Cotton

Cotton cultivation and yield

3.1 Cotton is a very old agricultural product of Iran, Marco Polohaving rpfprred to it as being producecl in 1290 A.]). Ilowever, it was onlyi,n the beginning of this century that Iranian cotton became a cash crop,Russia hoint, 1nrip1v instrumental in develoDing it as a source of rawmaterial for her growing textile industry. At the end of the Third Planin 196f. about 360j000 hectares were under ctiltivation, amountinz to 5%of the total cultivated land, but the target for 1972 is 395,000 hectares.

3.2 Over 70% of the cotton crop is grown in the region bordering thesouth11prn shnre of the Cnspian Spa which eniovs 400 mm. of rainfal a year.The other cotton growing areas need to be regularly irrigated by rivers,canals and depn wells- The. mnior rotton rorwin0 nreas arp as follws-

IIAJOR co'(l'ON GP.OWINCG ARE.AS AND C1APACTERISTTrCS

Average Production Avera-nArea Location Cultivationi Farm size of Iran Quality Staple Length

Gorgan East side of Irrigated 50 ha 50% Good 1-1/32" toC1at /1s al

I-laz nA l C1. an A / ', I

1fazaUnaran 'o U LN I .1 atural 1and 2 to I 5/ ha 2 Fai 1=/32 to

edge of irrigated 1-1/16"C..spiLan

Khorassan North-east Irrigated 2 to 5 ha 10% Fair 1" toIeran 1-1/16'

ITeh'ran E1ast of' AX Ir-l.g,a t e d Sm 'A-. 8,' Fair 1"_tTehran 1-1/16r'

.Fars Southern Irrigated Small 5% Fair 1-1/32" t.onLear Persi.an 1/|Gulf

3.3 The majority of the cultivation is performed mechanically althoughmany or the small farms are still hIanidi cultivated. All cotLUI picking is

done by hand but when and if labor becomes scarce it may be necessary touse nmechanical pickers on the iarger farms that can be adapted to mecnanica:i.picking.

- 22 -

3.4 The average acreaoe under cultivationn, average yields per acre

and average total production for the last several years are as follows:

Table 3.1: COTTON PRODUCTION

Acreage Yield per acre Production*Average Average Average1964-65 1969 1970 1964-68 1969 1970 1964-68 1969 1970

---- (in 1000 acres)--- --(in pounds per acre)- ----(in 1000 bales)--

890 940 790 314 363 334 582 710 550

*(P roduction b-asedI on 480 net- pounds- per bale. 1970 figures are preliminary

Source: U.S. Dept. of Agriculture, Cotton Division).

3.5 The above table shows a slight increase of acreage under cultiva-tiLon bet7ween the average of 19064=119655 period andA 1969, blut the pre-fimnary

estimates for 1970 seem to point to a sharp decline. This is difficult to

understandU ULor a co,,uio.odity which is thlle seconlu 'largest foreign exchange

earner after oil, and we would point out that the Iran Cotton Organizationestimates the 1970 crop at around th-e 1969 level.

3.6 In the year 1969 the mills in Iran consumed about 300,000 bales(65,454 tons) and the export market an additional 410,000 bales (89,454

f n nt -- /4C) fl n n't-1n flfll ttons) for a total or i1u,000 bales (1i5,9vo tonsE). ine 710,000 Vales of

cotton crop in Iran is 1.36% of the total world crop of about 52,000,000bales (11,345,454 tons). Output and yield of cotton in the major cotton-

growing countries of the world from 1964 through 1970 are shown in Table

3.2.

3.7 Tnere was a significant improvement in the yield per acre orhectare from the average of 1964/68 to 1969. The yield for 1970 is ob-

scured by the uncertainty of the data. A pilot farm of 15 hectares under

the control of the Ministry of Agriculture has already succeeded in raising

the yield on an experimental batch of the Cooker variety to one-third above

the national average. The Ministry of Water and Power also operates a 10-

hectare experimental station and has achieved similar results. These farms

are located in the Khuzistan-Luristan area where the land is well suited

to growing cotton, and where dams and reservoirs will have ample capacity

to irrigate up to 1,000,000 hectares.

-23 -

Irbe32: cONrN aAcreage, yieild, aknd production in spec ified~ countries, average 19614-,68, annual 1969 andi 1970 1

Acreage 2Yi.elS Fr,=ocuc17Iro-nV4

Continent and counitry Isl9454-68 a 1969 t 1970 i/ 1.964-68 1969 2 1970 2.1 19614-68 1969 :1.970 ~

I 1,000 : 1,0() s 1,000 a Pounds a Pounds- -1Pouns a1,000 a 1,000 2 lJiOOOiacrres a acres : acres : per ;cre aper acre a peracre s bales i bales abaLles

NORTH AMMICA: t I I I I 2Costa Rica .... a 1.7 t 13 a 13 a 5)08 : 5514 5514 a 18 2 15 t _1

E]l Salvado~r........,: 1644 122 1 ]I5 a 673 t 818 a 7145 : 230 208 : 22.5Guateniala.......,.33 a 182 175 a 702 : 633 2 658 a 341 t 2140 : 2140

Hodrs.o33 i 12 t 10) 625 : 600 s 672 2 43 2 15 2 114Mexico....... .,,: 1,822 i 1,340 : 1,20) : 618 a 627 i 6140 t 2,3145 : 1,750 : 1,600Nicaragua..........4.: 348 t 2140 t 21.5 : 6714 : 620 : 61h 1 489 a 310 a 275Urnitecl States ...,...... i11, 076 3 11,075 : 11,3214 t 5,04 t 1434 : 1450 a 11641 : 10,015 s 10,618

1014 a 105 : 105 2 1.02 t 101 a 101l a 22 2 22 : 22

Total 14/ ..... o...a .13,.757 a ___UI08: 13,187 a 5!26 : 461 7 5129 312,57 13,009

SWUrH AMI:RICA:Argentina........ 986 a 1.100 2 1 ,10)D 2 235 279 a 24. 2 1483 3 6140 2 550BraZil . ..... : 5,67'0 2 6,800 i 6.50) : 215 a 219 a 2C07 a 2,5-140 2 3,100 2,0

Coomiae......11437 : 635 : 600 a 1462 a 446 48,0 a 421 3 590 a 600Ecudo.o.,#~&*4,t 50 a 50D 2 213 21t 40 sAO 214 s 25 2 2,5

Paraguay........o..... 130 2 125 t 1215 t 185 2 211 i 21.1 a 50 i 55 a 55550 a 1420 t 410) 2 1442 a 4146 a 468 a 507 s 390 2 14010

Veneztkela*..#.........a 118 2 120 a 121) t 2614 z 280 a 280 a 65 2 70 a 701.7 i 18 2 11 a 3139 2 1427 a 427 : 12 : 16 a 16s

Total V4. .... . _ 7,9612 a 9,268 2 8923 2147 2:22143 t 4,886 s 14,886 2 4,516L

EUROPE:Bulgaria t...... 117 a 115 : 115 2952 313a 313 2 72 2 75 7a

Gec 3142 : 375 a 3301a 5114 a 653 a 633 a 366 2 510 2 43529 a 20 20D a 2148 2 192 a 192 : 15 a 8 8

Spi.1*,#o*.i 4414 340 2 2140 3185 2 3714 a 400 : 356 a 265 2 201)Yugoslavia...........a 214 t 28 30) 1 2140 : 2140 2214 2 12 : 114 aJ

Oteo.*~,esePt 60 a 60 2 60) t 1.76 : 160 160 : 22 a 20 a 20

Tot,a 14/........... t1 0 6 a 3: 79:: 160 11 5h &4 892 7

U.S.S wR .a. ... I......ai 6,0C60 a 6,300 a 6,300 : 711 2 678 2 724 a 8,980 8,900 a 9,500

.-24 -

TablE, 3.2 (cont'id

.''Ila98 135 : 135) : 201 : 320 : 320 : 41 90 : 90)Camneroon ....... 205 : 2 65 : 22,5 194t : 199 :1L92 : 83 110 9 0C e nt1r al Afr i can R1,ep.. 2 75 300 : 3 00 106 : 128 :L128 : 61i 80) 80

Cad737: 750 75,0 : 119 : 128 14412 200 : 22Key154 : 150 : 15l:'0 56 : 58 :58 18li -18 : 1 8M aw76 : 85 : 85 : h45s 198 : :98 : 23 35 : 35lOO . a 43 : 45 :5)0 368 : 267 288 3.3 : 25 30

MozarnbJ ice .......... 906 : 800 800O 96 : 120 : 120 : 181L 200 : 200Niei,a : 840 : 1,000 : 1,000 : 117 : 192 : 139 : 204 : 400 290

South Af rica, Rep. of: 90 : 1.10 : 11.0 : 42-L37: 46 9: 7 : 100Rhds.103 : 250o 250 : 3 77r 461 : 1461 8.1i : 240G 240

1ua......... ,1-61 : 1,315 : 1,324"5 : 3 55 : 347 : 3L4" 858 : 950 : 90T a nza nia......: 495 : 500 : 500 : 286W : 312 3.5'0 : 29.5 : 325 : 365TJAR-lEgyv-Pt........: 1.,756 : 1,680 : 1,1680 : 591L : 671 : 629 : :2, 16,1 : 2,350 : 2.,200lUgania ..oo..... .. 2,125 : 2.,000 2,100 : 78 : 94 : 91 : 34.5 : 390 : 400

Ot r 0*000o0o00 81: io6 101155 : 202 : :204 : 259 : 427 : 443

0otal 4/*..*.#....:-_q265 10, 0110, 501:1 : 239 : 273 : :263 : 14,9014 : 5,915 : 5,756

Afghanistan. ...... 310 : 3,00 : 3 00 : 175 : 160 : l60 11.3 100 11005um 15 : 3,75 : 375 : 67 : 77 : 7 7 : 72 : 60 : 60

China, Mlainland.0....: 12,080 : 12,300 1.2,500 : 26:L : 26-5 : : : : 6,580 :6,800 : 6,900oThi........;19,706 : 19,400 : 1.9,400.: 118 : 126 : :129 1 4, 860 : 5,100 : 5,200

890 5 9h0 : 79'0 : 314 : 363 : .334 : 582 : 710 : 55075 : 75 75 : 269? : 288 : 288 : 42 : 45 : 45

Ire .55 : 82 :85 : 986 : 1~,077 : 1,073 : 11.3 : 184 : 190KCoreaReD.o.... 48: 455: 19021 : 213 : 19 20 : 20

Pakistan. ............: 4,059 : 4,345 : 4,400 : 250 : 273 : :284 : 2,116 : 2,475 : 2,600SotenYmn 0 0 .: 45 : 40: 40 : 203 : 240 : :240 : 19 : 20 : 20

Syrian Arab FRepublic . 662 : 700 675 : 518 : 470 : 498 : 714 : 685 : 700Tha iLa nd ............. 222 150- c55 255 : 256 : 349 : 118 80 : 40TPurkey ( Eurol,e-A sia). 1,733: 1, 575 : 1,350 : 4 74 : 559 : 6410 : :1, 7 10 1,835 : 1,800

thr ..... 113 : 1.15 : 11-5 : 191:L 209 : :209 45 : 50 : 50

iotal 4/t.... .... .. 40 13 40, 42 : L 02(25 : 203 216 : 21 : 713 18,164 :18 275

- 25 -

Table 3-2 (contld)

OCEAN IA:Australia .......... .. : 57 78: 80 876: 751: 960: 104: 122: 6-60

Total 4/... .......: 57 : 78 - 80 -- 876 : 751: 960: 1iOh: 122 : 160

l'ota:L Foreign Free World 4/: 49,793 : 50,581 : 49,807: 230 : 243: 239: 23,847: 25,621: 24,832

Total ColwunJist Countries4!: 18,401 : 18,860 : 18,807 409 : X03: 420: 15,677: 15,818: 16,518]'ota:L World 4/..... .: 79,270 : 80,516 : 79,991: 310 : 307: 312: 51, .615: 51,454: 51,968

1/ Harvest season beginning August 1. 2/ Bales of 480 pounds net. 3/ Preliminary. o / Includes estimates for minor-Droducinig countries not shown above and allowances for countries where data are not yet available.

Foreign Agricultural Service. Prepared or estimated on the basis of of'ficial statistics of' foreign governments, otherforeign source materials, reports of U.S. Agricultural Attaches and Foreign Service Officers, resu:Lts of office research andrelated information.

United States Department of Agriculture, Consumer and Marketing Service, Cotton Division.

- 26 -

3.8 Cotton is divided into 8 maior classes as listed below:

White No. 1 - Same as IJ.S.D.A.'s S.M.

2 " M to SLM

t 3 3 SLM

t 4 LM

LIl to S.CO.

Spot 1 " Snotted M n1ipu

" 2 " M

" 3 it TM

3.9 In add5tion to the ahove there are also a uinperior grade ahove

No. 1 and a grade between No. 1 and No. 2.

Comparative tests

3.10 Seven samples of Iranian cotton were obtained from one mill by amn aeber of t--he missr.. These sam-les were tested in the U.S. and comparedwith an annual test made for U.S. mills by one of the consulting companiesengagel on thle mission. Thesoe rmult are shown on Table 3.3.

11 T.l 7 C -- A Tran.ia, cotton are of a similar grade but -he U.S.cotton is on the average 2/32" longer than Iranian and also is of a coarserridcronaire. -1e- raliz thUat it is Aan-rous to .make assu.mptiors n su..ch z

small sampling of Iranian cotton, but this test does confirm the informationta d.Lir £1 .L L di-- U LuC C LLL. LLW C . � t-tt LJLOtt .. C tC L-.oubtained iIran as to f5b11er length. I'lowever, the m..icronaire value was not

obtainable in Iran as they did no: test for this element. We suggest thatmicronaire be included i n -a 'Ll twests as we'llJ as additional. fiber tests as

suggested later in this section of the report.

3.12 If the results of the tests of Iranian cotton are typical of themajority, we feel the counts should be confined to a metric count not finer

than 40, if proper operating conditions are to be obtained. The finer micro-naire of the cotton while not as desirable as one somewhat coarser should beable to be manufactured successfully on the counts suggested.

3.13 However, as the majority of the cotton grown in Iran is about 1-1/32"

it precludes the spinning of finer yarns and fabrics that are in increasingdemand. As pointed out previously, the yarns of the fabric produced in thelargest quantity today in the U.S. are composed of 50 to 65 metric count.

We do not believe it would be possible to produce such a fabric with Iraniancotton and obtain the desired operating conditions and quality.

IFRANIAPN RAW C:OTTON1 GINNING AiNDDISTRIBUTION SYSTEMMI

LARGE FARMERS EXPORTS ](More than 50 hect(ires)

SHIPPPERS SHI PPERS --

CONTROLLED (COTTON SHIPPERS CONTROLLED

-- > LGINS ( 710 - MECHt T SINING MILL S |

941 PPIERS \ /y\mCONTROLLED V /FARMIERS ____]

(ROKERS PUzBLI C GRINS 11 OTHER PRIVATE

15% SPINqNING MILLS

INDEPIENDENTSMALL FARPJERS('2 - 50 hectores

GOVERNMENTOWINED GINS -j GOVERNMENT OWNED

15%) SPINNING MILIS

-------------rADLA I j ILPr% II -D

GOVERNMENT AIDS( Less thcin 2 hectares )

-__ I BRD 5884

- 28 -

3.14 Therefore if the market denands finer yarns and fabrics, theneither longer staple cotton must be obtained or thie present cotton blendedwith synthetic fibers such as polyesters.

Table 3.3: COMPARATIVE TESTS OF US AND IRANIAN RAWCOTTON CO1IlONLY USED lN PRINT L(OTH FABRICS

Grade Staple MicronaireAverage Average Average

U.S. Mill's

A SLM+ 1-3/32"+ 4.4B LM 1-3/32"+ 4.6C SlM+ 1-3/32"+ 4.4D SLM+ I-3/32"+ 4.4E M I-3/32"+ 4.6F SLM+ 1-3/32" 4.7G SLM+ 1-3/32" 4.4H M 1-3/32"+ 4.4I M 1-3/32"+ 4.5j SLM+ I-3/32"+ 4.6K SLM+ 1-3/32"+ 4.5L LM+ 1-3/32" 4.4M M 1-3/32"+ 4.7N SL1+ 1-3/32" 4=6o SLM+ 1-3/32"+ 4.6P SLM+ 1-3132"+ 4-AQ SL1M+ 1-3/32"+ 4.6R SLM4 1-3/32"

Iranian Samnleq

No. 1 SL.M 1-3/32" 3.82 SLM 1-3/32" 3.53 SLM 1-'/32" 1-74 LM 1-1/32" 3.65 SLM4 1-1/3" 3.96 SLM 1-1/32" 4.17 qTM 1-1/32 3.5

Gi nning ararvvt

3.15 In 1961 A governmen.i decrea wana isea,d tehat ginning factories beset up in cotton-producing areas. Seed cotton used to be transported toTehran but now gins are tocated near the fields.

3.16 Most of the gins are well equ.pped with saw type gins, dryers andlint cleaners.

- 29 -

3.17 About 70 percent of the ginning factories are controlled by cottonmerchants, 15 percent are independent and perform most of the custom ginningand the remaining 15 percent are government controlled.

3.18 The government gins are less modern and the ginned cotton is soldonly to domestic mills. They exist by necessity in order to protect smallfarmers by advancing cotton seed and receiving seed. There are about 78modern gin factrries in the country.

3.19 The small and scattered cotton fields cause the farmers to use hempand goat hair bags to transport the cotton to the gins. Careless handling ofthe bags causes some hemp and hair fibers to become mixed with the cottonwhich becomes troublesome not only at the gins but also in subsequent spin--ning of the fiber. The government is aware of the problem and is working i:oeliminate hemp and hair type bags for transportation.

3.20 There is no organization such as a marketina board on large foreLgnshippers so the activities are carried out by private enterprises. The larcgenercentage of eotton merchandizing is in the hands of several Iranian shin--pers who control the market. Many of thie ginning factories are equippetl withcotton seed oil refinerv mills t-n extrart f-he oil from the seeds As fats-and oils are not abunclant in Iran cotton seed oil is in demand.

- 30 -

Classing Methods

3.21 Classers are granted licenses after two years of training and thereis at least one at each ginning factory. Ie feel not enough attention ispaid to classing and grading. Staple length is actually classed in some casesfrom seed cotton and staple and grade are marked on the bale ticket before anysamples are taken from each bale for analysis. Therefore it is dangerous torely on the bale description given on the ticket. The farmers in many casessell their seed cotton and not the ginned fiber whiich penalizes the farmer.

Buying by Mills

3.22 From the observations made in a dozen cotton spinning plants thereis insufficient attention paid to the correct purchasing of cotton. Once thecotton is bought from a broker or dealer there is no standardization for usingthis cotton according to staple length, grade, micronaire, short fiber con-tent, Pressley strengtlh test, etc. Inattention to this important subject isreflected in the operating conditions of practically every mill visited. Oneof the first mills visited was pre-blending the cotton before starting itthrouglh the production line. This was being done in an effort to mix thecotton better, and it was successful as this mill had the best operating con-ditions encountered. W4hile it was successful we do not recommend this pro-cedure as it adds to the product cost. If attention is paid to the purchas-ing and blending of cotton this procedure would be unnecessary.

Exorts vs. Domestic Use

3.23 Over 50 percent of the Iranian cotton crop is exported and there-fore must find acceptance ini the countries receiving it. However the for-eign manufactures using Iranian cotton must grade, class and blend morethoroughly than the Iranian mills as there does not seem to be experiencedcotton departments in eaclh mill. This poor attention given to cotton is re-flected in thie poor running conditions of niost of the plants.

Domestic Prices (1970 crop year)

3.24 Following is the domestic price for the most popular grades andstaple lengths.

No. 1 41-42 rials per kilo 1" to 1-1/16"

2 3'3-40 " " 1" to 1-1/16"

3 36-3 " " 1 to 16"

4 34-35 " " " ?" to 1-' hA"

prices. (Source: eMi asr hbout 2 rialts pere kilo ver,ner toIan 1Q9)prices. (Source: Mlinistry of Agriculture, Government of Iran.)

- 31 -

A simnple kvypcl breAkdoan of tho cottnr fiber rcst ic nc fnllorws:

3 kilos u-g4nned cotton 4R ra cot.nml

r4 nn4

-n fn c-nA rr 4 it

A 49 .75 "

Credit- for 2 kilos seeds andlinters 13.0 " "

Cost of 1 kilo ginned cotton 36.75 " "

.3.26 Depending on the quality and staple this cotton would sell in the39 and 42 rials per kilo range.

B. WOOL

.ranian Wooi

.3.27 Iranian wool is not adaptabie for commercial type wearing appareland is too coarse. However it is used extensively for carpets and blankets.

.3.28 The production of raw wool for 1969 was about 19,500 metric tonsand lhas been at about this figure for the last several years.

Table 3.4: IRANIAN RAW WOOL PRODI)UCTIlON

1960 1961 1962 1963 1964 1965 i966 1967 1968M4etric tons

16000 17000 17500 19000 18000 18500 19000 19250 19500

Source: Compiled from reports and records of Foreign Agriculture Serviceand Agriculture Estimates Division, Statistical Reporting Service,U.S.A.

3.29 The production of Iranian wool is a bi-product of sheep whose meatprovides the staple meat diet of the population. As the Iranian wool fiberis principally used for carpets this was not investigated any further.

Sources, Quantity

3.30 All wool for use in the manufacturing of fabrics for wearing ap-parel is imported in the greased state, scoured state or as tops. The great:-er percentage is imported as tops which is the most practical state in whichto purchase for the worsted production sector. Some grease and scoured woolsare imported mostly for the production of woolen fabrics. Tie imports of

- 32 -

wool fiber are principally from Australia but some are also imported from

Israel, France, Italy, West Germany and the United Kingdom.

3.31 There are some worsted yarns imported with one plant using 20 tons

per month. The importation of yarns is due to some of the weaving mills hiav-

ing insufficient spinning capacity.

Trend in World Production

3.32 Since 1960 to 1969 the increase in the world production of wool on

a grease basis amounted to 590 million pounds or an increase of about 10 per-

cent. (See Table 3.4 on World Production of R'aw Wool 1960-69). We believe

the world growth of wool fiber will remain at the same level as the produc-

tion of synthetic fibers increase. Synthetics are at present being blended

with wool thereby reducing the amount of wool fiber per garment.

- 33-

Table 3.4: Production of wrool,, grease basiLs, in specified countries andworld, 1'960 to date

Country orregion 196CI : 1961 : 1962 : 1963 : 196i : 1'365 : 1966 : 1967 : 1968 : 1969 7/

: Million poundsNort-h America

United States 1/ 298.9 293.7 2 76.5 261.2 237. 21 .2 71 1 98.1 182.91Canada : 8 .3 7.4 7.2 6,8 6.3 5.18 5.0 8/3.8 8/3 .5 8/3 .0

South AmericaArgentina : 487.4 4.68,,0 437.6 421.0 443.1 1465.2 462.4 450.7 449.7 445.3Uruguay : 18CI.8 185.,2 189.6 194,,0 189.6 L85.2 189.6 178.6 165.3 165.C0Brazil 56.5 56.8 5C5.7 58,.5 '70.2 78.2 59.4 64.8 78.5 79.6Chile 5C0.5 51.,1 53.1 53.-8 55.6 56.2 56.2 57.5 56.0 55.'5Peru : 21.9 22.0 23.3 24,.2 24.3 23.1 22.1 21.8 21.6 21.C)

Total SouthAmerica 2/ : 82C0.0 805,,0 780.0 775,,0 803.8 828.9 81l1.9 794.6 792.3 7-87.6

EuropeUnited Kingdon : 121.2 131.3 129.7 130.6 126.7 129.:3 131.2 128.0 127.0 124.0Ireland 23.5 24.,9 26.6 26,,0 26.3 25.5 25.5 22.6 22.4 22.0NbJWay 8.0 8,,o 8.0 8.,o 8.0 11.0 11.7 12.0 11.4 LL.0Netherlands : 2.2 2,,2 2.2 2,.2 2.2 2.,2 2.2 2.2 2.2 2. 2;France 65.1 69.2 7'0.0 61.7 53.0 61.0 61.4 63.9 66.6 68.2Span : 65.4 63.,9 66.0 81,,3 80.7 79.8 79 .4 79.0 76.1 77.7Portugal 24.3 24.8 25.4 25.6 25.9 26.0 29.7 31.0 31.0 30.6Ital;y : 29.5 29.,1 29.6 29.4 29.3 34.? 31.9 32.7 29.4 29.8

Germany (West) 11.4 11.4 21.0 10,5 7.5 6.13 '7.1 7.9 703 7.7Poland 19.9 19.4 18.0 16,1 :L6.3 J6.5 17.6 19.0 19.4 19.1Hungary 18.5 204,8 20.3 20.9 23.2 22.14 21.8 22.3 22.0 22.0Yugoslavia 29.9 30,,3 26.4 27,8 26.9 27.'7 29.7 30.5 30.9 28.0Bulgaria 46.4 51. 9 50.2 52.3 56.o 56.9 562.2 59.5 63.9 59.5Romania : 48.2 50.,7 52 49 ,8 .7 56.'' 575 fi?.8 62.8 61.7Greece 25.2 254,6 26.5 24,.4 26., 26.0 .5 17.5 17.6 17.0

Total Europe 2/ :=777 --0 600.0 60Th.0 60h7 9 61.0 632 0 - l 7 22 0C

- 34 -

Table 3.4 (cont' d)

U .5 . R- (Europe and:Asia) 3/ : 780.0 800.0 818.8 813.5 751.8 787.0 81V 9 870.8 910.5 881.8

AsiaTurkey (Europe and

Asia) : lo4.4 99.2 94.2 92.6 94.8 94.8 97.0 lOL.4 103.6 10.5.8Irae :23 0 23.0 24.0 25..0 28.0 28.0D 28.0 28.0 29.0 30.0Iran : 353 37.5 38.6 41.59 39.7 40.8 41,.9 42.3 43.0 43.7syria L:.6 16.1 17.8 18.7 26.5 29.1 33.1 3(.0 28.0 28.0India . 75.2 75.4 75.8 75.0) 78-0 77.2 80.0 81.6 81.6 79.4China i Ainlarid) 1/ : 147.5 140.0 130.0 I55. 6 163.0 169.3 170.0 172.0 174.0 176.0

Total Asia 2/ 5J 495 00C) 543 5793.9

AfricaRepublIc of South :Africei 5/ : 3:20.7 334.6 322.0 322.9 315.0 362.5 322.0 33:2.6 340,5 332.5

Toteal AJrica 2/ : 405.0 415.0 405.0 405.C) 39i7.6 442.0 401.9 410o.3 422.6 415.5

OceaniaAustrahlia : 1#635.1 1,699.5 1,672.5 1,781.7 1,783.7 1,&62.8 1,762.3 l,76'3.7 1,938.7 1,997.7New Zealand : 537.6 587.1 620.0 616. 8 623.3 694.8 j O)4 728.3 731.0 735.0

Total : 2,290.0 2 290.0 X2 O777.0 2_377C6T2 .7 4o3.0 2 .732.7

World Total 6/ : 5,64o.o 5,745.0 5,700.0 5,820.0 5,776.6 5,839.9 5,937.5 6,013.1 6,228.1 6,230.1

1/ Weight of shorn and pulled wool as reported by Agricultural Estimates Divison, SRS. 2/ Includes estimates for countriesnot listed0 3/ Present boundaries beginning 1936. 4/ IncludeS China proper (22 provinces), Manchuria, Sinkiang, and Tibet.5/ Includes Lesotho and South West Africa. 6/ For 1935 andl earlier years includes reported actual weight of U.S. pulledwool production; for 1936 and later years estimated greasy shorn equi lent weight of IJ.S. pul:led wiool production. Forsummary purposes, includes wool produced mostly in the spring in the Northern Hemisphere is combinead with that produoqd -lnthe season bEinirg July 1 of the same year in the Southern Hemisphere. 7/ Preliminary. 8/ Does not include pulledwool..

Compiled from reports and records of Foreign Agricultural SerTice and Agricultural Estimates Division, StatisticalReporting Service.

- 35 -

rf n A V U

Sources

3.33 Rayon filament and staple fiber are being totally imported prin-cipally froml various European arnd Japan1ese bc)urces. The world production oftlhis fiber is at present increasing slightly but we feel with the reductionin price of other types of synthetic uibers, sucih as polyesters, that eneworld production of rayon will begin to decline. The question is discussedin detail in Volume IIi.

Quantity used/importea/cosC

3.34 The average price for 1970 was about 45 riais per kilo pius 10rials for custom duty and 3 rials for insurance and transporation for alanded cost of about 58 riais per kilo.

Reason for Use: Consumer preference and carrying the cotton

3.35 The use of whole or rayon-cotton blend imparts a sheen to the fa-bric which is a desirable feature to the Iranian consumer due to its silk-like feel.

3.36 The rayon fiber is also the cheapest synthetic tiber with the land-ed price not much higher than cotton when the lower waste factor for rayonis applied.

:3.37 Due to the poor operating condition encountered in producing allcotton fabrics with the Iranian cotton some mills use a percent rayon as anaid to carrying the cotton fiber to produce better operating conditions.

I)yes and Chemicals

3.38 All dyes and textile chemicals are imported principally from Euro-pean countries such as Germany and Switzerland. There is usually a lag timeof several months between placing the order and its being received unless itls a stock item that is warehoused by a local broker.

3.39 The base prices for dyes and chemicals is competitive. Hlowever acluty of about 30 percent is applied raising the product costs over countriesthat do not have to pay such a duty.

World Productionl and Trends

3.40 The manufacture of dyes and chemicals is concentrated in the devel-oped countries. As a great deal of research and development is necessary inthe manufacture of these items and as Tran's present consumption could notsupport such an industry we feel there should not be any consideration givento their manufacture at this time.

- 36 -

Tlr IT A fII' AK,rV 'A; At -I'i'r

A. Labor

lotal employmient

4 S.LnceL'l te LaLate 19J5)'s total er,IJ,Yploe[tL I_I LIMn LLIUUsrLL tsL.L5ed1J cUL

ton sector, excluding small-scale industry and distribution, has been around4U,UUU, Iut receniL expansion wijl niave increaseu tLis to aboutL 53,O5u work-

ers by 1971. The woolen sector has and is expanding and will shortly employab'out 11,500 workers. Therefore by Lthe end of 1971 total employment in tnetextile industry, exclusive of carpets and ghelims, will be about 65,350workscers.

Capability/Skills

4. romi observat-lons at severa'l text"lle factoriLes the Iraia wrkehas the required skill and dexterity to develop into capable textile opera-tors. 1lowever because of lack of a cooCdInated traLnIng program these skills

have not been developed in the majority of the plants. An exception is atShaihi No. 2 (a government-ownedi piant) where iaboratories nave been instailedand are equipped with illstructors to teach the workers the proper methods ofperforming their assignments. This plant also has classrooms where basiceducation is being tauglht to the workers three hours per day previous totheir scheduled factory wori. Wnen they complete and pass this course theyare given an automatic 5 percent wage increase.

4.3 In the areas around the Caspian many of the factory workers alsowork on farms previous to or after their regular working day. Managementcomplained that their farm work contributed to their inefficiency at theplant as they were physically tired from tlhe manual farm work.

4.4 W4hen the mills were started in the Southern part of the UnitedS,tates this same situation held true. Ilowever as industrialization progres-sed the workers confined their employmenit to factory work and we believe thiswill hold true in Iran.

Productivity

4.5 The productivity of the workers is as good as any developing cotunl-try but it is not reflected in output per man hkour due to poor operating con-ditions. Following is a table of various styles comparing the meters per manper hour of Iran with other countries. It will be seen from this table thatthe labor productivity in Iran is about 40 percent to 50 percent of that ofits neighboring country Turkey, in cotton and blends.

- 37 -

Table 4.1: T APrhP PODT)TYTUTTV

(meters per man hour)

Style Iran Turkey U.S.A. Canada U.K. Germany Japan Hong Kong

Cotton and Blends

Cotton Chit - Printed. 6.1 114.4 44.6 36.6 13.8 17.7 16.1 10.8

Viscose - Printed 5.9 14.0 43.5 35.7 13.4 17.2 15.6 10.5

n 8.d 16.9 52.5 43.0 16.2 20.8 18.9 12.7

Cotton Piece Dyed 5.6 3.9 '.6.8 15.0 5.7 7.1 6.1 4.6

Viscose Pieee Dyed 6.5 16.2 50.A hit.3 15.6 20.0 18.1 12,2

Cotton Chit - Printed 11.0 16.0 49.6 40.7 15.3 19.6 17.9 12.0

Viscose Chit -Printed 9.3 13.2 41.0 33.7 12.7 16.3 114.7 9.9

Cotton Chit -Printed 5.6 18.0 55.7 -45.7 17.2 22.1 20.0 13.5

Cotton Chelvar 4.9 10.9 34.0 27.8 10.5 13.5 12.2 8.2

Polyester - Viscose PieceDyed 4.3 9.6 29.8 24.4 9.2 11.8 10.7 7.2

Viscose - Printed 4.3 13.0 40.3 33.0 12.4 16.0 14.5 9.7

Cotton Print 7.2 15.2 47.1 38.6 14.6 18.7 17.0 11.4

Cotton Chelvar 7.8 16.2 50.4 41.3 15.6 20.0 18.1 12.2

Cotton Print 5.5 1U.i 34.5 28.3 10.7 13.7 12.4 8.3

Cotton Piece Dyed 7.5 12.8 39.8 32.7 12.3 15.8 A I).3 9.6

Cotton Bleached 12.0 15.0 46.7 38.3 114.4 18.5 16.8 11.3

Cotton Piece Dyed 3.5 12.2 37.9 31.1 11.7 15.0 13.6 9.2

Viscose Filament & Staple 4.4 8.6 26.7 21.9 8.3 10.6 9.6 6.5

Viscose Printed 6.5 13.9 43.2 35.4 13.3 17.1 15.5 10.5

Polyester - ViscosePiece Dyecl 3.5 6.1 19.0 15.6 5.9 7.5 6.B 4.6

Average 6.5 12.8 40.2 33.0 12.4 15.9 14.4 9.7

- 38 -

Table 4.1 (cont'd)

Style Iran Turkey U.S. Canada U.K. Italy

WorsLed and Woolens

All worsted 1.4 i.5 5.( 4.8 2.4 3.8

Polyester - Worsted 1.1t 0.5 2.2 2.0 1.0 1.6

All worsted 0.5 1.2 3.9 3.7 1.9 2.9

All worsted 0.3 0.7 2.3 2.2 1.1 1.8

All worsted 0.3 o.6 2.1 2.0 1.0 1.6

Worsted - Viscose 0.9 0.7 2.8 2.6 1.3 2.1

Worsted - Viscose 0.9 1.5 6.1 5.7 2.8 4.5

All worsted 0.4 0.7 2.3 2.2 1.1 1.7

Nll worsted 0.3 0.8 2.6 2.5 1.3 2.0

Worsted - Viscose 1.5 o.6 2.4 2.2 1.1 1.8

Wool - Vi:.cose 1.5 1.1 4.6 4.3 2.2 3.4

Average 0.9 0.9 3.3 3.1 1.6 2.5

- 39 -

Labor Utilization

4.6 Labor at present is not used efficiently as there is an absence ofindustrial engineering and training programs. Workers in most cases arepresently assigned by opinion as to the assignment and not based on any sc::icn-tific method. A proper training program coupled with a standards departmentwill enable Droner assitnnments to be Dlaced into effect. Hlowever it wouldbe necessary first to have the plants operating properly before any successis attained In utilizing labor in the best nossible manner. A standards de-partment should be installed and their first assignment slhoul(d be to deter-mine why the onerating conditions are so noor Suggest0ins shou1 d be madeafter these studies are made and steps taken to implement the necessaryrhanges to imnrove the oneratin connitiions. Aftter the pl ants are oneratiingproperly then an analysis of the assignments should take place to detetniinethe normal iob dfiities and onerations a worker shoniled perform in any oiven npe-riod. Such a program would improve the machine efficiencies, lower the num-ber of workers within the nlant and result in lnwer manufacturing rosts withhigher quality standards.

Age and Sex

4.7 The plants are staffed principally by males, females being employedhy evrepntinn in the c1lnth incnrting and walirn drnawfing dean3rtments.

4.8 The age of the workers is related in many cases to the age of theplant. An old plant in Esfahan has an average age in tlse fifties while atthe newer worsted mills the average age i9 in the twenties.

Wage Rates and SociaLlJ' ------

4.9 Th1e mnaJor-ty of Ile textile mills operate three. 8=lhour shifts, IXIiL IIJ 42 L~ 14 AC LCA L I 2. IL .. LL. *je -I LiIL C UIi U LI.L L~ '4

days per week. Iraniani law provides that the workers receive pay for the'7 ^1 . T - - - ^PL. 1-_..- 1 .. -I - .1..--1, ... - . L-. 1--1- i n 'Pa-l -1 Jnc-u -I LLI UCa.ly L R L t1 ILi ILL)UL 111U1 WtCtr.Ly Wa6t_C iLiWwI ±11 .i dl/t 4 ±LIX lUU

pay for the 7th day. The fringe benefits are the actuals being paid weekly.

- 40 -

Table 4.2: WAGEF RATlES AND SOCIAL CGHA.MES

Private i: in ir.MT L Avc:rac.e - 3 hours i.veraz,e - LB8 hours Average nor ho.ur

or LE:ii Lv (, -iaK) ( r>]ffi- (r. l½\

Mill and tu Goverrunent Locati6ln t' ( DC al Lotal Wocsa e ocial ;e ic tai 'd a Fcs o 1 SociI TotaL

Cot t on CZ Tiahran 9Y7 151. 79 233 928 h7 i4:,04 19.3 '' 2 2

Cotton ''ehran 90 55 59 218 93v 3 L :1,2718 19.' 7.2 266

Cot ,on KaXoaj 80 18!6 6v 2 1T . i76 0 80 1,2Tt 18.3 b.5 2S,;

Aorst-d P Ghazvin 6C 128 35 163 6 2:1 7 16.0 9 .84 20.8

COttor1 ( Shani 70 182 61 203 652 356 1,218 17.8 7.6 25.!

,otton la Behshar 90 168 60 228 1,0303 3G0 1,368 21.0 7.5 26.5

Cct+on WTorste d G Shahi 80 1.3 61 21L, 918 366 1,c281 19.1 7.6 26.7

Wcrstcd Wool P E,sfahaq 80 1L6 S'8 2081 8o76o 388 1,228 13 7.2 2.5

Cottr P Es- aIarn SO 1609 684 233 1,0 18 358 1,398p 21.,1 8. 0 25 .1

7'rzt:d Wool P Ssfahan 50 163 ;c 221 975 3l8 1,326 20.8 It.2 27.6

Cotton p E sfalhan 60 1 8j It6 1 0 80 2 (6 1,0o8o 16.8 5.6 22.6

Worsted P fsfaha-n 8 0 128 59 18 768 388 1)112 16.0 7.2 23.?

- 41 -

4.10 The following shows an average of the earnings of workcers of gov-ernment mills compared to those of the private sector.

rable 4.3: COMIARATIVE EARNINGS - GOVErNMKNT ANDPT;IVATL SECTOP

-- ]a-rnings per hour (rials) - -

Private Covernment DifferenceRange Average Ranee Average RiaIs PerceRnt

Waves 16.0 to 21.1 18.1 17.8 to 21.0 19.3 1.2 6.6

Social 4.4 to 8.5 6.9 7.2 to 9.9 8-0 1-1 15.9

Total 20.S -o 29 ! 259 ) 25=4 to. 2q 2 27=3 2=3 9=2

4=11 The above com:parison shows that thle government mills pay highlerearnings, social charges and total average earnings. While the differenceof 9.2%, is not excessive it points out that there is a difference and itcould increase in the future and affect these charges in the private sector.increases 4 n labor prductoivia, o-arA asf olnte 4 f product costsare to remain stable or be reduced. Any increases in wages should be morethan off-se 4 ncreases ln rA,d 4 -4 v 4 n order t ,o absorb the 4ncreases.

4.12 Using the1 S. as exan:pl- the average wage and socIal cost perworker twenty years ago was approximately $1.23 per hour versus about $2.52per h.our at prLesent oL an increase of 1.05/% F. DF;;rin8 thlis tim.4e fabr1c costprices from the manufacturing plants have decreased approximately 12-1/2%.(See UChapter 2', T1ahl''e 2. 10) . TIhere were othLer Iin1l.Luences contr1 Li b ut inig tothis, stuch as fiber costs, technological changes, etc. but without increasesi., labor productivity th_ere would4 h-ave b-een a slb.irp increase. andu a comparable1 1114. jL IC.L.V. L .LII WI _L IJ t Li £CU CZ 1 iL O C a, aA.LIISIO 4 -CL)

increase in selling prices.

Labor Legislation

4.13 The present labor laws are not overly restrictive from the manage-IILCIL L I£U tL ta V * V .1 CW cant, a>L G 0 £SIIJ. As0 v I I IJ 11 )0 J C [l 'L 1) 1 4 1 G lhIll LI L IG J 4-IC V C.LIp LMXI *4

countries.

There are laws suclh as:

Profit shari4ng

Overtime (over 8 hours per dlay - 48 hours per week)

Overtime premium - 35%

Overtime restricted to 4 hours per day

Third shift premium - 35%

Seventh day compensation

- 42 -

Termination allowzince - Based on length of service

Social security tax - 13% of wrages (to be increased to 15%)

Paid holidays - 10 days plus paid vacation 12 days.

Training in P'lant

Description and Recommendations

4.14 There is no fornmal training of workers such as is used in developedcountries. In the plants visited newy workers are assigned to older employeesand expected to acquire the necessary skills. With this method the olderworker who hias not been trained properly certainly cannot properly train newworkers. In addition. this is not the best method to train workers as morescientific programs result in much better results. This is a very importantDart of any nrogram to improve thle onerating' conditions of the present plants;

and without proper training the mills will operate at their present low effi-crienries nd nonr qiualitv standards_

4.15 We suggest facilities including classrooms and nrototvnes of im-portant machines be set up in a classroom within the plant. A properlytrainedr inztrrurtor (nne wlho has been nrnfe1iona11v trainedc) shoi1ld be em-

ployed to teach and instruct workers before they are assigned to jobs in theniil I.

4.1! Whien th!ey are ready to be assigned to th!e plant, an. in-plant in-structor should constantly check with the new workers to make sure the as-c i-n-nt ic ha-4n inrfnrnior n t-T ... * n .nnrr -oc,in-plant instructor should be made to the worker, and occasionally a re-fresher course in the classroom ma-y be necessary.

A.17 Nlewer 4ndustries locating near text-ile plants p_aying, hlghez wa-esfor more desirable employment can prove bothersome. liowever, from our ob-servatlilons such potentiall co;rF1-etitionl for labour is likely to be confined tothe Tlehran area. As government is providng incentives to industry to locateat least 120 k-i.lo t ers away fronmL TIe,ran and c,< kr," a-ny from sfl,a t1hisshould not be an important deterent for new mills. The older plants now lo-catedU i1n heavily industriaLl arfeaCsd LILL;LL L IiVR: haveiLncLrea diffc1LI %ALLU.LLy Lin retCiIn=

ing workers. Therefore, it is important that the mills' operating conditionslie improved, so as to emiploy less lauor at higher wages 'i the mi'lls are- to

compete for labor. In addition the improved operating conditions coupledI -- I I - _ I 1 - -- 1 -1 D ! swith cleaner plants will attract new employees as well as nelp retain o±uer

ones.

- 43 -

B. Manageent

Top Owner Managers

4.18 Most top owner managers usually started in a small way ancl expand-ed without much planning. In most cases they do not have the proper train-ing to operate in today's market. Often the mill is an outgrowth of a mer-chandizer who has had no manufacturing experience. There is an absence ofprofessional type managers, and until there is proper top management theplants will remain in their present unsatisfactory conditioni. Due to asheltered market and the low, cost of labor it is not difficult to operateprofitably lience it is unnecessary for the owners to be very skilled in man-ufacturing knowhow.

Teclhnical Expertise in iManagement

4.19 Some of the mills have technically trained people in managerialnositions who have been educated and trained in technical schools in de-veloped countries. Whiile they are competent there are too few of them with-in any given nlant to have an important imnact.

Plant L.evP1 _an_o_mpnt

L 2n Tn nraprt1r:ilv n11 mill.c vizifod rhp nl>nt 1PVPl nf fnrpmpn manage-

ment is not adequate. Wlhile in most cases they are sincere they have notbeen trained in modenrl management techniques= Hence, they are not able toimprove conditions but: are just keeping the department running as best theycan. In mlost cases they are people that have been promoted to foremen be-cause they are good machine operators. We suggest vocational type schoolsbe establlshed within the plants wIth com.petent Instructors 4n charge. Wo:ck-ers and sub-foremen should be provi(led with incentives to attend and in thismanner an Up,-n1 4 - of --!4 4- T.,-riIA -ld h cpolble.

:tann~aement- Attitudeso

4.21 Aa most of t-he plants are operating profitabolI,I management does notseem to have any incentive to lower their cost and improve quality. We feelthe total ban on cotton textiles contributes to thils conditIon as de-.ann hasincreased as well as selling prices. The attitude of ignoring quality becausethe public wi1l purchme the pArod .cts sah .u.1d. 1 A rh on f.oawvr 4 F no.w ni-n

are started they should be engineeredl so that a low cost and high quality pro-duA.t s produ.ed, tIerab., Car nr th-e oiAde plnfs toF i.prove or bo me non

competitive.

Management D)evelopment - Industrial Management Institute

4.22 During several textile plant visits, management personinel were eni-countere[ w'io lialdU UL4 Lri trainedI uy or connIected wt iti the IndtistriaL.1 !dILdgIt

Institute (IM1I) in Telhran. A mecting witli Mr. Bijan Khorram, Director of t:heInstitute, developed the following information.

- 44 -

4. 23 Th.- In-ttirutp nrovildes Qpnpr;1 m;inagement servicers and alqn uindr-takes specific industrial engineering and technological studies for industry.'Thi5 wnrk is( done nn a -nn-sltinc basis with a staff of approximately 60 pro-

fessionals who work for fees ranging, fronm approximately $120 to $200 per day.Betw..peen 1Q62 and 197!, the Institute desrigned and iinnlomeort-d annrxfimately

500 operating systems and in 1970 they were able to operate on a break-evenbasis f te first time.

42 I- th-e -p,lc ficr are nf traninjg-f , T t ne Inittiu,t-a etfimntCe tn hant- it-

lhas trained approximately 10,000 supervisors, foremen and managers. Some ofthis training is undertaken as an adjunc- t-n a nsnn,lt-ing ascignment nd- ic

done at the factory as on-the-job or classroonm training, or as a combinationof the two. The Institute believes in traini ng programs which are designedfor a specific situation and implemented by their personnel at the client'ssite.

A2 Th R r 4 c h nuirric, 1 rim of innstiutmeato 1o h 9 minon-oma-,

courses which are given at their headquarters in Tehran. These run for2-.1 9 sn.-l, with students attendin- twice eacnh week for tNo-llour eve4- ng

sessions. Terms run four times each year with various courses scheduled ac-cording to demr.and.

4_ Th -e Instuitue also has n intensive C Vt a.i. for advanced -------- s,developed and conducted by Artliur D. Little, Inc. in CambriWge, Massachusetts,U7.SC. A . n In 1970A, 25 ,meni participatedI in a nine=,.,onthi course 4n Ca.,brIdge. Inu * * fl L I EY I ki U- _ Stu H L _L L L u J_I 0 111tI.L LI LU.- L I cittOIU LUS * I

1971, the Institute plans to move the course to Tehran and expand it to a two-year progra[,,.

4.2 ' faci Llit of the Institute appear to be gUood and 't seerii,s that

the textile industry could nmake good use of the training facilities which itprovides .

Research and Development/Design

4.28 'lihere is an absence of researcn and development In the plants. Themills thlat do have laboratories are not well enough equipped to control pro-duction and quality, so any additional type or researcn and developmient arenot being considered. The average textile mills in other countries do nothave pure researchl and developmzent. Miachinery designers and manufiacturersare better equipped to. research Improved machiin..:-; and processes. Mill re-searchi and developnment is confined to pattern design and providing betteroperating conditions and finishiing teclhniqlues.

4.29 Design of fabrics and patterns are for the most part copied fromotlher countries or by wiholesalers providing pattern and color design services.This is not unusual even for the inore developed countries.

- 45 -

Foreig,n "l'echLnci C i

4. JJ orein s 1 peciLstsLI aL r e fLo r thL e ,,ost rtL emIployed iI tL i 'WO LWrsteL

sector, and are performing well as judged by the products being produced..- -- X--..--.--l.--t.----JJ..- -- -l 1T lie expatriates are principal. ly emuployeLd in the rie-w worst:Ud m1. ills, andU Wi.ll1-

be rep1 aced as Iranians are trained in their techniques.

4.31 The older worsted mills as well as the cotton sector should employsome foreign technicians and engineers in an errort to piace the mills in amore competitive position. Their engagement coupled with more aggressivemanagement will place the industry in a more favorabie position and iranshould be able to compete successfully with other developing countries.

United Merchants Contribution to Chit Sazy

4.32 Chit Sazy (a government-owned mill) is operating much better thanthe average of the oth,er miiis visited. As an exampie tne Weaving Departmentis attaining 83% efficiency compared with an industry average of about 70%.This is brought about 'by a more alert management, improved technology andbetter methods than found in most other mills. It is obvious that the 10years that United Merchants and MJanufacturers of the U.S.A. hiad managed theplant, has certainly 'had a positive influence. Mianagement is more alertand is constantly looking for ideas and better ways to manufacture.

- 46 -

V. I'RODIUCTION PERFORIMANCE

A. Physical lProduction

Machines - Suitabilitv

5.1 Excent for the muilLs set Ui) in the 1960's. the equi.)ment in thucot:ton and the olLer worstcd sector is generally old aind In some cases obso--lete and incainable of r)rodlucinit the li[Oilest qualtty att the lowest possibl.ecost in its present physical condition. Ti'le equipment Ti n many Iranian miislscan not he operated comnetitively ill a ilevelopeDC country. Nevertheless, theequipment can produce thte desired type fabric, at a penalty of highier costaincd lower qual itv tv lan is necess;ary. A great deal of tlie presenL. machinerycan be moderic:ized to bring it up) to g,ood opera tive standards. Tlhis i.sdescrihed in more dcetnil in Ch:ipter Vl.

Prntdctinon 1PvP1.

5.2 The nrochction levels- due to noor oneratinp conditions and olan-ning are low. The average weaving efficiency is about 70% in the cottonsector, rather than an 2ve-rage of RK to 92,.' in fAct-orie onprat-ng -indeveloped countries producing similar fabrics. This relationship in effi-c-iency -aple to~ all ntlher depa-rtme nts, and in manyq cases-- isq exaggeratedtby the poor weaving efficiency causing imbalance throughout the plant.Ihe industry has a potential of about 15. mnore capaclrty if the plants arebrought up to proper operating standards.

Methods of prodtuction

5.3 The products are produced in the generally accepted manner, exceptthat the present machinery is old, slov speed, poorly maintaineoi wit?l smallpackage sizes tlhat not only contribute to high cost but also to inferiorquall4 iy. Mos- of the worsted industry is better ni,innd thnn thie coton

sector because - with the exception of Vatan - i.t is more modern.

Machine balance

5.4 Most of the cottoni type mills were constrtucted to prodluce ac je apr g rI (Iti ,d) ri c tLiian now in te inan l and n IU lUe- i.ng p p rodUced . J'.e cane to

finer fabrics has caused an imbalance between the Carding and lpinningDepartments as well as Preparation anU WeavinVg. WheLe a1 plant has its oWnIfinishing equipment the, change to finer fabrics causes less meters producedin the Weaving Department, hence less meters for the Finishing DJepartment tobleach, dye and print. The worsted mills for the most part are modern andclosely in balance.

- 47 -

Maintenan ce

5.5 The machinery hias in general been poorly maintainecl, and in thtemajority of the mills 1here is an absence of preventive maintenance pro-grams. Many michines :iave not been overhauled, lined or levele(d sincebeing installedl. However, one of the mills with the oldest: machiinery(Beshalir) kept its machlinery in fairvy good meclianical condition.

Snare Darts

5.6 Obtaininp snare Darts is a chronLc Droblemr and mill manaQgmentscomplain of the und,ue delay in obtaining these parts from foreign machinemanufacturers I'here i'5 a rustomss duty on spare narts of 9~' to 10% whirhfurther raises product costs. A thorough review of this suhiect shiould bemade so tlhat u1ndue - (el(ys in d-eliveries is elinli- n-tfl,

B. Evaluation of Integrated Plants

5.7 Nost cotton type bgrey mi41 1-- f-.nis1,4- facilities for each.plant. When the mills were originally constructed this was necessary sothat grey fabri.cs could be finished. IFa . i p la.nt fo- -achr

grey mill results in an inefficient finishing plant as the nminimum sizeplant will' procluce .mmre mineterage than a norm,al grey ,mi4 t01 can I ou.CI'herefore, much of the finishing equipment operates at low capacity whichresults i.n 1;igt- i-lh-1n costs Caia .stfr a fiihn lant ,sL~ .L L. L11 LA.~Lr1 k_LALU-L~ LbLb . ,2PLd£I- LL)-, L ULk d L_LII.LbAIJLLI6 P.LLL Lb

high, causing a waste cf this capital when the plant is not employed to'L Ls capaciLty. So,,,e of th Ie presentL L' inisthing p.Lants sbould be coLUhined andUequipped to finish for several grey mills. Thiis will he difficult due tothi-e presenLt rell.u-ctanc of t- e -il t. send Ihl prdut to -outside --- 1 ~--

LII jL~b11 L~.U Ld1Le UI 61.Vy IlIb.--. L(P bIUtIU LI1ML~.I1 PIUU.ULLb LII UULS.LLJt

finishers. However if the industry is to bec:ome versatile and competitiveLLL* b d:LIa 1-/11 W1. 'e IJU X tib.btl y .*t I UUL LLU Id£ 11 iltt L11: I LUVL dL Ub U L

fabrics will require special type finishlng eqluipment. This type of equip-ment should be limited to desgnated finishing pl.ants, and grey mills pro-ducing certain blends would send their production to these specializedplants for t"Snis14.LS.. C-A-

C 0 Mie X. iIULIlI d1L1b11iWLLLU i U.1 yp LlLc5. h iihng facilities f'or a worsted oroo.e t-iIypeJ *allric-plant are normally a part of the grey mill. This is possible as worstedor woolen finishing does not reqluire as large- a production to be efficientas does the cotton sector.

C. Production iiethLids

5.9 The blending of raw cotton fibers leaves mucih to be desired.Bales of cotton are presently placed behiinCd the blenders and fedl witlhoutcare as to proper nurmiber of bales in eacih mix, proper micronaire of fiber,

- 48 -

staple length of fiber, etc. Cotton is fed in large amlounts per feed ratherthan a smaller amount. L<eworkable waste is fed indiscrimlinately into themix ratlher than having a waste miiachiine set in the line feeding only a pre-determined amount. When the raw cotton is not blended properly the endproduct of yarn or fabric will be of poor quality. Poor blend(ing cannotbe corrected by any subsequent processes.

Machine settings

5.10 There is no formalized program of maintaining proper machiinesettings so that quality standards may be ensurecd. This is very apparentat the carding machines where it is obvious that no attention is beinggiven to settings as the product is uneven, has excessive neps and theshiorter fibers are not being removed.

5.11 This same condition is apparent tlhrouglhout most of the,mills soeachi subsequent process is not producing the desired product causing apyramiding of poor operating and quality conditions. All these ills coim-pound, resulting in uneven yarns whiclh are weak in breaking strength caus-ing poor weaving efficiencies and fabrics of inferior quality. Untilmore attention is given machine settings and machine overhauls it willnot be possible to achieve low costs and high quality plants.

Method of spinning the fillin_

5.12 Most Iranian mills spin the filling on a large bobbin, wind thisto a cone to remove imperfections, then rewind it onto a filling quill.This operation should be combined on thie spinning frame by spinning thefilling directly onto the filling quill. This will be possible when thespinning is operating properly tlhereby eliminating the need to removeimIperfections. Only on fine quality yarns should the present method beretainedl. This would eliminate the cone winding and quilling of fillingyarns tihereby eliminating workers an(d freeing this area for other use. Itwill also reduce the amount of capital required especially when construct-ing new plants.

Poor quality control

5.13 In most plants there is an absence of quality control. Depart-ments slhould be organized whose duties it will be to check the product ateach oneration to ensure its evenness, strengtth arid quality. This depart-ment slhould control all operating condlitions witli suggestions as to propermachine sneeds; drafts and Dackage weights for each particular product.This will improve operating conditions resulting in increases in effi-riP nrit-.- and quallit-vy

Ab5ce1, Pf nroduction control s-stem

5.14 Production control systems are not up to modern standards oftenresulting in idle machiinery due to plant imbalance. As mills become moreconf4ned to limited product mixes, it will be easier to control productionby processes.

- 49 -

5.15 The production control systems in the worsted and woolen sectorare better than the cotton sector, and orders are being controlled byprocesses.

Absence of cost mneasuremiient and control

5.16 Witlh the exception of the mills in Shahi, where cost systems hadbeen installed several years ago, there is an absence of a proper cost sys.-tem. In obtatining fabric costs it is apparent that many of the mills donot know7 tlheir product costs by styles hut deal principally in averages.ln a mill making several styles from coarse to medium weight the only costthat would be near accurate would be the average of coarse and medium.IHowever. even. these costs would not be accurate due to different clothconstructions hiaving similar weiglhts.

5.17 There is such a conglomerate of metlhods of calculating costs thatit is difficult to describe them all, and we seriously auestion the correct-ness of the majority.

5.18 Proper cost systems should be installed so that labor and over-heads can be calculated by cost centers with proper weipltinn given todifferent types of yarns and fabrics. All raw materials and finishingmaterial costs should be separately calculated. A system of Overhead andLabor controls should be a part of any system, so that product costs maybe under control at all times- This tvne of rcst svsteni w11 enahle flipmill to utilize their plant to its best advantage.

Poor lighting

5.19 The lighting in most plants is inadequate and of such poor in-tensity that the workers have cdifficult seei n well enough to properlyperform thieir duties. A worker having difficulty in Ldentifying thle pro-duct properly will produce inferior q- ali tIes.

Foor lIvn,nt

20 Mi ic fon- tli nimot nprt are of si nt Iin ,1 story so thtropr v-n .,

layouts can easily be obtained. Vachinery layotuts in some plants is not themost desirable but we believe they are the result of plant becoming unbal-anced by a changing product mix. Floor areas in most plants wi]l permitbetter layouts and this should be ,Planned p.revious to re,,rgan4zation andmodernization.

Poor process carriers

5.21 The process carriers (cans, bobbins, beams, trucks, etc.) are old,and of ineffici4ent sie Tn ..aycses they are worn, so thlat thLe productis being damaged in processing. We do not Suggest any changes at this timeas modle-nilzatlon prov1des ror new larp,C K p rocess .arr ers.

- 50 -

VI. REIORGANIZATION, 31OD]LRIZI"ATI(10£, RATIO;NAI,ZATTO)N

A. Feorganization

6.1 Iranian mill sizes vary from uneconomic small units to units toolarge to obtain low costs and highl quality.

6.2 There has been some concentration of fabric styling in the lastfew years as the demand for finer, lighter weight cloths has increased.We realize that the population of Iran cannot support entire mills onsinple product lines. Hlowever, a study should be made to concentratesimilar families of fabrics into units adaptable for their production atthe lowest costs. As an examnle- nlants that are comnatihle with Droduc-ing celrded yarns capable of going into the Chit and Chalvar range, shouldbe enrouraged in some way to nrodtire these stvles and not finer lighterfabrics that would unbalance the plant. Mills producing combed cottonand eomhed cotton w-ith synthetic fibers should concentrate on these stvl-ings.

Reorganization of Plants into Competitive Size Units

6.3 Previous to reorganizing plants into competitive size units a studyshould be conducted as to the present and future nrodnct ranges that will hedemanded by the consumer. Thereafter, one should determine the proper sizeiunit for the particular nroducrt range We suggest as a gunideline that

spinning units be confined to 20,000 to 30,000 spindles and weaving plantsfrom 500 to 60n looms. We have found that plants of this si7e can he managed

easier and produce at highest efficiencies and at low cost. There is noobection if more than one such size plant is in close proximity to thleother, but they should be separate plants, separately managed, and each beas self-sufficient as possible with no transfer of products bettween plants.Experiences with large textile plants has shown in practically all casesthat they do not have as low a cost nor as high quality as the above-described ideal size plant.

Transfer of Equipment to Properly Handle Counts and Types of Cloth

6.4 When a mill is being reorganized and/or modernized, a propermachine layout should De part of tie proect. AIs prouuct lines changemills become out of balance. Therefore, it is important that mills beoperated on the same average yarn count and average picks per c.r11. orthey will become unbalanced and tend toward higher costs. Some changeswill always be necessary as product lines chiange but they should be keptto a minimum. If thie average count compatible with the mill and the averagefabric type are maintainied, the imbalance shotld be minor.

- 51 -

Reorganization of Cotton Buying Dleparttments and Testins3 Techn.iques

6 . 5 ThIs is a ve;ry important subject as there is an absence of pur-chasing raw cotton fiber in a scientific manner. Most mills purchase ar ---.~ er w -t- --out --.or-ou -. . y " - n e- 1.At- b a a f- -- pl- ' ', -- t.- -3J - - I

IJ WL. I-IL 11 _LIIULU LtLL[.Ly LLIrLr- Lir K c tIL Uact LUL OLCJ )J .l Lt:LIr,LII, ?;L dCit. , 1111.

cronaire, short fiber content, strength, etc. If each bale is checked bya competent cotton technician u-isng up-to-date laborLatLy equijLI.t-IL many

of the bales that are presently being used would be rejected. In othercases bales of thle sar,- chlaracterlstiLs couuJd be segtregated and c-onfinedto separate mixes. The finished product of a textile plant is thoroughlydependent on the type of raw LaW terial used a0 how it is bl enLed 1 Ite

operating conditions throughout the plant are also governed to a great ex-tent by the raw fiber used.

6.6 A cotton departmeent should be maintained at eachi plant usingmodern testing techniques to control the raw fiber. This department shouldbe staffed by an experienced person capable of rejecting and assigning balesto certain mixes to atitain the best operating condition for finishied pro-ducts.

6.7 Proper attenition to raw fiber is thie first requlslite for a welloperated, low cost, high quality plant.

B. Modernization

llodernize opening, Picking, Carding, Drawing, Roving andSpinning to Produce a Better Yarn

6.8 After the coitton testing problem is solved, modernization of theyarn manufacturing facilities from Blending through Sizing shotuld takeplace. Modernization does not necessarlly mean all new equipment but pur-chasing new equipment where necessary and modernizing the present equipmentwhere possible.

6.9 The blending, opening and picking in most of the mills is poorand in need of modernization and/or new equipmiient. Some of the presentequipment may be updated and used in conjunction with the new.

6.10 The Cards are basically sound, but we suggest they be overhauledto provide new cylJnder and doffer hearings, metallic clothing rather thanthe present flexible wire, larger coilers, crush rolls to help removeforeign matter and neps, and an individual dust exhaust system. Withthese modifications the Cards should produce a qualitv product at an ave-rage speed of 18 kg//hr rather than the present average of 5 kcg/hir. Ifand when this change is made it will be imperative to keep the Cards ingood operating condition to ensure producing a higzh grade product. The

- 52 -

Card is one of the most important pieces of machinery in a mill, as it re-moves short fiber and neps, and if the Card is not kept in proper conditionthere is no subsequent operation that can achieve this purpose.

6.11 The Drawing for the most part should be scrapped, and modern Ihighspeed, large package machines installed equiped with overhead air cleaners.

6.12 They will operate at about 24() meters per minute rather than thepresent 39 meters per minute. Care will have to be taken to keep them ingood operating condition to ensure high efficiencies and a proper product.

6.13 The Roving equipment in most cases is not the most desirablepackage size but we suggest those that are in the best condition be re-tained and equipped with better drafting equipment, stop motions, andoverhead cleaning. In many cases they eventually should be replaced butwe believe new roving should be deferred at this time as with the abovechanges they will be useful for some time and capital expenditures can bemade in more important areas.

6.14 Much of the spinning frames are basically sound but should bemodernized with new drafting zones, new spindles for larger packages, opencreels and overhead cleaning witlh automatic floor sweepers. These changeson those equipments that warrant modernization will ensure good operatingconditions at a competitive cost. Older spinning frames that are notcapable of being brought up-to-date slhould be scrapped and new equipmentinstalled.

6.15 Winding equipment should be overhauledl and modern slubi catchersplaced on all spindles along with overhead cleaning equipment. Mlills inthe developed countries are rapidly changiing to automatic winding. How-ever, withi the low labor rates in Iran, the largye capital investment inautomatic equipment cannot be justified.

6.16 Warping equipment is fair but we believe it should be overlhauledand equipned with modern stop motions arid overhead cleaning. The beamdiameters are not of a mo(lern size but this is not of a critical nature,and a larger size would not improve qualLty.

6.17 Wav Rizin eoauiDment is generallv Door. and we feel much of itsliould be replaced to properly prepare warps for the weaving department.

Defer all. Weaving Ajpropriation uintil Spinning is Mtodernized, ExceptWhelare i fforpnt- TunI nr,nv r Rniufred for the Product

6.?8 We j 4be]iev unt7i such time as the yarn manufacturrin and prepara-

tion facilities are improved any loom expenditures should be deferred. Newlooms would be of a higher speed 7nd would com-ound the -arn problem now

causing poor weaving efficiencies and low quality. However, if because ofmar&Ket LeU,ands 'Looms oil a .wldder width t or fancy mLoti1ons are destir ed, it.

- 53 -

would be necessary to install enouglh to meet the demands. Any loom re-placement shouild be kept to an absolute minimum until the yarn manufactur-ing facilities are improved. There is a potential 15% increase in metercapacity wlhen the yarns are of better strengtht and quality.

MIodernize, Where Necessary, Air Conditioning Systems

6.19 The majority of the mills visited had out-of-date humidity sys-tems. As mills are modernized these systems shiould be renewed for bettercontrolled hurmiidity conditions. In the mills manufacturing cotton andsynthetic blends or all synthetic blends it will be necessary to providesome type of air cooling systems in order to have proper operating condi-tions. In a few years most of the mills will be producing blend fabrics,so consideration should be given to installing an air cooling system inconjunction with the humidity systems.

Modernize Lighting

6.20 Some of the plants have fair lighting but the majority are in needof modern lighting, and this should take place as part of any modernizationprogram.

Ilodernize Cloth InsDection M4achinery

6.21 Quality of cotton and blend fabrics is not controllecl through aninspection program. The Worsted and Wollen sector has good quality con-trol.

6.22 Modern machinery should be installed to shear. brush and inspectfabrics. Quality standards should be inauguratecl to insure better qualityfabri4rs

Mnrierni 7A' Fini!shine PFolonment Onlv Where Essential PentdingRationalization of Fin:Lshing Plants

6.23 Some modernization will be necessary in the present plants es-nprially for the finishing of blencd fabrirs- Any additional modernizationshould be kept to a minimum pending a study as to the rationalization ofthe present plant.a As pointed out nrevinously, this is necesary if thefinishing plants are to be of a viable size and low cost, with equipmentto handle all types of cotton or blentl fahrics

6.24 The Worstel-Wnnoln industry have t!eir own plants and we do notsuggest any change.

Cost of Modernization

6.25 In order to modernize the Spinning and Preparation Departments asou14Ained in4 tlhi4o.s^ L seCtion. ^o-fi. th reprt , ana epndtrof $000 't$60,000,000 will be necessary. No estimates for the modernization of theWorte olen CsctiLo n hLlas bcen nnade with thLI e eLxcet L oL t V La tan .heytCn

- 54 -

are we!! eq uipped and only rIqirej normatl yar-to-year mdrni zati-n.Vatan might be liquidated and a new plant built outside of Esfahan.

Table 6.1: SUtMfaARY OF COST OF MODERNIZATIONBASEL) ON 680,00)0 SPIN'DU.S

(without contingencies and possible price escalation)

Cost Foreign ExchangeType of Machinery Dollars Rials billion Rials billion

Picking through roving 16,076,00( 1,200 1,200

Spinning 13,600,000 1,020 1,020

Winding 3,500,000 262 262

Warping 1,00(,000 75 75

Slashing 1,750,000 132 132

Air Conditioning and Liglhting 5,000,000 375 188

Misc. Equipment & Process Carriers 4,100,000 308 308

Finishing Equipment 2,500,000 187 187

Freiglht and Erection 6,500,000 488 244

Import duty - 5% L2,413, 7 50 181 181

TOTAI, 50,439,750 4,234 3,803

($50,700,000)

Return on the Modernization Investment

6.26 A broad estimate of the cost savings resulting from the moderniza-tion progrnm wonl1d be about $;24.950.O0() or 1.884 million rials Der vear.This estimate is based on a cost reduction of 4 rials per meter with theexisting plants nrnduclino 471 mil lion mpters ner year by 1980. In addition-the yarn quality should be imuproved so that a better fabric is produced.This will be a step tow.ard nakinc expnort-orientpd nqiulitv fabrics at an

exportable price per meter. Hliglher quality fabrics should also offer pros-pects of earr;1ng better mar4ins a-nd prices.

IC 't. 4- -. A. e-I ., .-.-. A ., ,l4 -y~ 4..,r tmn - rn, Ant-.m- fromn a num-Ge rle cosoa reauction and quali.y mproves would celber of areas.

- 55 --

a I- 1oor-tf r4c o nm.nntont ni,rlIncoc t.7ihro h,nt*tlIncnlrc nvI, a- r 4

outdated equipment is being used.

b) Closer attention to maintenance schedules an(d spaire partsrequ..rer,;ts.

c) t t- I pi a-SLS actiu b-etter equipmu 1- L Mient ancl techniques fLor bU'lenUding.

Ud A corside ra bLJ.e amIoIuLint ofU eiii-phasis on traL in'n ,, aL 811 leVels.

e) The development and use of standard costs, standard product-ivit.y measurements, individual wage incentives and standardquality measurements.

f) Operating schedules of 144 hours per week, 50 weeks per year.

g) Where possible, rearranged production schedlles allowingindividual mills to specialize on fabrics rather than pro-ducing some of every fabric as at present.

h) Wnere possible, rearrangement of the present investments inbuild.ings, spinning and weaving equipment and finislhingequipment to produce economi.c spinning and weaving units andfinishing units in those cases where one or both portionsare presently too small.

i) The use of temporary outside management and technical assist-ance to plan and implement the operating improvement potentials.

6.28 Table 6.2 shows the cost savings for two types of fabrics. Thesesavings are based on present and potential costs resulting from moderniza-tion as recommended. T'he comparisoni is shown for 100 percent cotton; 50 per-cent cotton - 50 perc:ert polyester without duty oni imported polyester fiber.,and also 50 percent - 50 percent cotton-polyester blend with the presentIranian duty on the polyester fiber.

- 56 -

Table_6.2: IRAN COST ClIeFARISOIIS - FABRIC (COST IN RIALIS PER METER W1TH AND WITHOUT MODERNIZATION

50/50 Po:Lyester/C,otton 50/50 Polyester/Cotton100% Cotton without (uty orn fiber with duty cn fiber

Present Potential Probable Potential Potential Probable Potential PotentiaCosts Costs Present Costs Costs Costs Present Costs Costs Costs

WORK S:HIR'ABRICPiece Irred CLoth (without (wr' th out

l- 2 (includes $0.05 fcr insur- $0.05 -for (incls. $0.05 for insur- $0.05 for24s Warp 16s filling ance & freight pol;yester) ins.& frt.) ance & freight polyester) ins.&I'rt)

Raw material 6.08 6.08 9.24 P.24 8.56 10.46 -10.6 C.78

Process material 2.38 2.38 2.38 2.38 2.38 2.38 2.38 2.38

Labor 3.56 1.69 3.56 1.69 1.69 3.56 1.69 1.69

Overhead lo.41 7.68 10.41 7.68 7.68 10.41 7.68 7.68

Total 22.43 -7.83 25.59 20.99 20.31 26.81 22.21 21.53

Polyester Cost/lb $C...6 $G.46 $0.41 $0.55 $0.#55 $0.3

WCRK PANT FABRICPiece Dy2d4Cloth

3-/ 101 x 732/2 warp -15/2 filling

Raw material 17.,88 17.8B 22.53 22.53 21.0o 25.22 25.22 23.73

Process material 7.50 7.50 7.50 7.50 7.50 7 50 7.5C 7.50

Labor 5.24 2.41 5.24 2.49 2.49 5.2-1 2.49 2.49

Overhead 16.65 14.53 16.65 1L.53 1L.53.10,65 14m53 1.h

Total 47.27 142.50 51.92 47.05 15.56 54.61 45.74 o8.25

Polyester Ccst/lb $0.16 $0.46 $C.1 $C.55 $G.5 $0.50

- 57 -

C PATTONALTZATTON

Combine Small Plants witlh Competitors into Competitive Units

6.29 Eventually some of the smaller plants shoul]d be combined to es-tazblish mlore o .,pc S.tie4v size units. T!:is could be --- 1 4.l!-e during

modernization, as with higher speed machinery additional output per square.ftrok lo spac w4i tak -I,--..4 1 F1.-- lori are oEnsidered thish will1

81C U V 1 VVP;t<tCwJL |I F - X WyX t 1t1 Jl. . IW.- ,*,i1|,Wa

also be true. T7herefore, previous to comlination of small plants, plansshould Ile form,i; --- as to how .- -c if -n adiioa -lo -pc -wil be.i UUI Li LU l tI.LL d s LU IIUW tiLAIUL 4.L clAly .1u1 LiULXk1. A. 4.LVUL.~ a. WiiL

necessary to combine two or three plants into a single unit. When suclhcombinations take place thle co-iiDiu nd unilts sbould be on One sai-i-,e fai-ily

of styles.

Establish Independent Finishing Plants of Low Cost Natture

6.30 This subject has been covered to some degree in previous sections.Hiowever, these plants would not riecessarily have to be operated by inue-pendent finishers but could be part of a large organization and finish forseveral smaller units. it would be desirable that they be indepen-dent butthat may not be possible for some time. Nevertheless, finishing plantsshould be operated three shifts six days per week as are the grey mills.

>.31 nThey would nol necessarily nave to be as large as in some or thielarger countries hut they should be rationalized so all of the equipmentwould operate at capacity on the type fabrics it is laid out to produce.

Specialize either as Sales Yarn Units or Weaviiig units

6.32 Mills should be rationalize(i so that they operate as Sales Yarnunits for the production of yarns for knitters, braiders, etc. Other millsshould be Spinning units balanced with looms in the sane mill. These Spin-Weave units shoujld be rationalized to produce yarns for the looms only andriot for both looms and sales yarn purposes. The quality of yarns forsales yarns are usually of a higlher quality than yarns produced for weaving.

6.33 When Such rationalization takes place consideration should begiven to keeping the car7ded yarns apart from combed yarns both in Salesyarn units and Weaving inits. This may not always be possible but anywith both types should be kept to a minirmum.

0.34 In the Worsted mills visited we found that they principally pro-cluced Worsted fabrics but also have a small Woolen unit which is operatedwith some of the waste ifrom the Worsted unit. As a rule the Woolen unitis too small to be efficient. We suggest the present Woolen system equip-ment be combined into competitive units.

- 58 -

Four Government Units

6.35 The four government plants intended to be sold in the first in-stance, have the following spindles and looms:

Spindles Looms

Chit Sazy 40,800 1,284

Belhshar 35,000 1,200

Shalii No. 1 21,632 526

Shiahli No. 2 30,720 1,020

6-36 An exrellent onnortunitv exists with these government-controlledmills to begin a rationalization program. Further discussion of this sub-,iot ic cnntained in the rhanter on stratpgy and poliries. Rv mnderniza-tion it may be possible to make this combination possible. Iiowever, wesuggept the unirts h kepnt to a 30-000 snindle 600 loom size. This maybe possible by having two of these units in one building complex butoperated as entirely separate units Tlip styvle withlin the suggestedunits should be kept to a minimum anid on the same family of fabrics.

- 59 -

VII. TIE TEXTILE DISTRIBUTlON AND MARKETING SYSTEM

A. Distriljution

Thae Present System

7.1 As witlh most trading in Iran, over 80 percent of the textiletransactions and thie initial warehousinig take place in the Tehran Bazaar, alarge complex of wholesale and retail operations with warehouse facilitiesnearby. Goods are shipped from factories located in various sections ofIran to wholesalers in the Bazaar, primarily in complete bales of a givenfabric.

7.2 Approximately fifty maior wholesalers are the first link in thedistribution clhain and they handle virtually all of tlhe goods which passtiirouah the bazaar. ln spite of their large volume- these are small one-rations often consistiing, of one or two owners and a bookkeeper in a singleoffice- They operate i1ith few emn1ovtypp nnd they din not- own storage faci-lities, but utilize public warehouses, payin,, on a per bale basis. Thus,their onperating costs are very low.

7 3 Below the levjel of the first or maior wholesalersdefinitionsare not as simple, for sub-wholesalers range from very large to very smallandi MaTV nnpera-te on both a re tiail anrd uol e'al 1 asi, {ith 1-irae cli,nowners in the cities selling to small sihop owners and pedlars in thesuirrouinding rn

7=4 Goods may go through as many na fos,r steps oras fc.. Mc tw,o be-

fore reaching the consumer. Allowing for these exceptions, the distribut-ingv chain and its links can be surmarized as follows:

MXalor 4hn1esalers

tnmhber and loe.ttion: Annroxiniately 5- a:!l r.ifi, offirp in Tehran a,indsome having representatives in othier cities.

';ize of order: Miniiiium order to mills is 10,000 to 25,000 meters

and typical schipment s approximately 50 bales(50,0 00 meters).

Credit: Usually buy against linie of credit from a bank;terms 5 mtonths, 18 percent pe nam

Sub-Wholesalers

Number and Location: No data available. Estimated at 6-000 in Tehranand 6,000 in all other areas of Iran. These varywidely in size and some also sell at rptail.

Size of order: Average nuirchase for lnroer firmni iq 9 hales(5,000 meters). Smaller firms may purchase fullbales or even fractional hbaes hut always in fullbolts.

Credit: Most purchases for credit against promlissory notes.Tnterest annroxiiniatc1v 18 nercent=

Retailers

Number and location: No information available. Sampling indicates onestore per 1000 n popnlation or 28,000 StoFre inelud-

ing overlappinig with wiholesalers.

Size of order: Purclhase in full bolts only, range from 4 to 5bolts to several bales per order. Sell by themeter to consumEiers.

Credit: Buy for credit up to five months, sell to theconserS L &i /EE cre- U it. .usually 1e to tr ee [t mon-hs

buL up to six iLonths. Interest charges 18 percentor r.,oreJ usually incluUeU inL pric,W~ L-11 Uwit d-iULLn

for casht.

The Effect of Transportation Improvements

7.5 In recent years, imnprovements in the transportation system inIrn hve teUeU LU shorten thie distrliutlon cLiaLi. New roadL's and thie

-rowth of bus and truck routes hiave teinded to eliminate the smaller whole-

saler or hLite retailer who adlso serves ;is a qlL-wlUholesaler. Ili tile towLi oL

Sari (population approximately 30,000), one large textile distributor notedLilat iLCew roau's Lroln hLs towni Lo Iu-hrLan (, ppro)Lxiltely 125 2kllo meters) i-avedeprived hlim of his business as a wholesaler. Teti years ago approximatelyhall of his volume wefnt to small retailers anld pedlars. With the adventof inexpensive transportation to Tehran, thiis business was eliminated andthese buyers now go to the Tehran Bazaar tiemselves. There they undouDbed-ly benefit from lower prices and a better selection. This same merclhantnoted that he travels to Tehiran at least once every month; buys goods fromseveral different wholesalers, and receives delivery by truck within oneto two days.

- 61 -

Distribution Outside t.he Wholesale - Retail Chain

7.6 In addition to the goods sold through privately owned retailstores, some Lextiles, perhaps 10 percent of the total OULpUt, are marKeteaoutside of this distribution chain. The other outlets include:

- Retail outlets owned by the textile mi:Lls

- Cooperative stores run by an employee association in agiven area (teachers, bank employees, etc.)

- Government purchalses for the armied services, institutionsand government agencies.

7.7 The mill stores are the most important of these groups as theyexert a stabilizing ef'fect on retail prices. Thie largest group of millstores is operated by the Iran Factories Group with 23 stores in Iran,six of which are located in Tehran and thle rest in medium to large cities.The mill stores sell only for cash, and as they are not permitted to market:the exclusive designs of the wholesalers, their selections are not as exten-sive as those in the better retail slhops. On the other hand, they maintainprices somewhiat below most retailers and this helps to control unwarrantedprice increases in the market.

B. Marketing

7.8 In reviewing the marketing of textiles in Iran, we will deal pri-.marily with cotton and cotton type fabrics wlhich account for 90 percent ofthe total textile production. As with every marketing system, there is thequestion of whether existing procedures effectively meet the needs of themarket at a reasonable cost. W4e will review the meclhanics of Iran's tex-tile marketing system, contrast the system with those in effect in othercountries and discuss the cost to the consumer.

Special Reguirements of Iran's Market

7.9 There are several requirements for an effective textile marketingsystem in Iran whiclh are quite different from those in other countries,particularly the developed ones. The two most important are:

1. Textile sales are destined for the ultimate consumerinstead of the apparel manufacturers.

2. Credit is used in a high percentage of all transac-tiO11s including thie final sale to the consumer.

- 62 -

7. 10 The absence of a mass production apparel. indclustry adds to theapparel costs for the consumer aiid LILhis is discussed in another section ofthis report. In textile distribution it means that thie color - designdecisions nornmally muade by apparel manufacturers who purchase textiles inbulk must be performed at somie other step in the nmarketing process. Italso means that retail operations will be totally different. In a developedcouatry the ratio of textile retailers to apparel retailers would be of theorder of I to 20 and in Iran this ratio would be reversed (i.e. 20 to 1).As Iran's industrialized apparel industry develops, the present textilemarketing system will change. Credit requiremlents are also different fromthose in developed countries, primarily in the need for credit sales tothe consumer. The need for credit decisions at all levels, from the firstwlholesaler to the retailer encourages small operations where the owner playsa maior role in the risk takins, which credit decisions entail.

Thle Decision Process in Marketing

7.11 All marketing on textiles in Irani starts in Telbran. The 50 malortextile wholesalers who hanidle 80 percent of the mills' output, as well asall of the mills' sales offices and sales managers are located there. Thesales managers meet with the whiolesalers frequently, sometimes daily, re-view orders and make marketing decisions. In these meetings thiere is oftena great deal of discussion, but the wholesalers have the final say on de-signs, colors and quantities: time maior marketing decisions. ITI reachingthese decisions, the wholesaler must also make a comiimitment for a quantityof goods.which is large enoughl to provide a minimum economical productionlot before a mill will accept thle order and fitish (i.e. dye or print) thegoods. The desien hie selects and orders is often viven to him on an ex-clusive basis. Since no goods are printed or dyed in anticipation offuture orders thlis mijeans thIat the wholesal rs e fFprti vely control and are

responsible for thie marketing, function.

7.12 Tlhe wlholesaler system is a natUral outgrowth of conditions wlhichexiste.l prior to 1955 when inports q'wnnl it,d Ir2n with- over ) nerr.rnt cf

all textiles, and probably more than 80 percent of all fancy textiles re-quiring design and color tecisions n At ti)at vfirm, imnporters provided thecountry with its textiles, and thie sajme men who were importers in 1955 are

7.13 ' I1ere arc -el! es tah clli,:- pFr-1c,.A ureF Eol,lowe b nth the jhnl -

saler and the factory sales manager in reaching marketing decisions. ILncotto:. and cottor: type fa.bres, miinimun- orde-rs are approximptely 25,(000

meters for inexpensive fabrics (typically Rls 18 to 22 per meter) and 15,C00L11X LCL *~ L)X V s X L; 1L *jV J .L t ISL ,tfl La.t ~'f OUG ~L J , XXXA XO^oLL V ~L W vVO

different color combinations, all usinig thie same print design.

7.14 In a typical situation, a wholesaler could be purchasing 20 designsLi roiii one~ mL'Ll~ c1Li JA LIn L U,IA L'~ U L LIL7 %J I _J W~ ILU Au l u- con L-L u-Lug sye l, leacv i iv hree to six colors. electing new stye, t hle wholesaling styles, leaving five new ones. In selecting new stvles, the wliolesaler

- 63 -

would determine market trends through discussions with hiis sub-wliolesalersand by watching sales. Some also secure swatches from the textile marketsin other countries and screen thiese for designs wlhich might be successfulin the Iranian market. As in all marketing situations, many new designsare copies of existing best sellers, using a previouis basic design withminor clhanges.

7.15 From all of these sources, then, the wholesaler brings his ideasto the sales oiffice of the textile mill. Before the design process begins,detailed discussions are held by both parties reviewing the probable successof a proposed new style. The mill representatives advise on any potentialproduction diflficulties in producing a given design, i.e. the problems inaccurately reproducing a given color or a fine line. Following this, art-ists' renditions of the design are prepared and finally strike-offs, orsample runs, are made in a variety of colors on thie clotlh. The strike-offs may inclucle nine or ten colors from whiichl five or six are eventuallychiosen. I-e have reviewed this design procedure to indicate the number ofsteps involved and to note that review and discussions take place betweenthe mill and the wholesaler at each of these steps.

E'valuation of the System and Comparison witth other Countries

7.16 Iran's systemi is in marked contrast: to procedures in most develope!dcountries wlhere the textile mills have large marketing and sales organiza-tions. In these developed countries, market research and design groupsconstantly monitor constumer preferences and in many instances attempt toinfluence consumers in favor of new fabrics, new colors, new designs. Themills also consult regularly with apparel manufacturers in order to benefitfrom their sales experience and to identify developing trends. Based onall of this information, the mills finally make the ultimate decisions oncolors and designs thenmselves, offering a complete line to their customers,the apparel mianufacturers. Ilowever, it is also important to note thatwhile desian decisions and fabric consiiitments are mad e hy the wholesalersin Iran, and by the textile companies Ln developed countries, in both casesa hiTh degree of cooDeration exists.

7.17 We have reviewed three reports dealing with textile marketing inLran wh1ichi liave encouraged changes in tile function of the wholesalers.Snecificallv. they have recommended the addition of sales and marketings,taffs for the factories and the transfer of the design and marketing re-snonsibilities and decisions from the wholesalers to thie textile companies

7.18 Our evaluation of present marketine Drocodures indicates thati:he wholesalers effectively deterniinie consunmer preferences and markettrends in Iran. As entrepreneurs they continually take risks on new de-signs, profiting by wise decisions thirough an extra mark-up for popular_ond __ annd haring thp cos t of mark-downs when a rolor or ds1ign doesnot sell well. It seems doubtful that a salaried sales staff would beqsimi larIv mot ivated .

7. 19 We shiould also note thiat the wholesalers' practical knowledge ofconsumer preferences appears to work well ill the sty,ling of new fabrics.Direct inspection of approximiiately 200 fabric swatches indicated that thepresent mnarketi.-ng system! S todAy,, r-vid i4 n,-, ten Tr.ania4 on cusrtme.r with a

wide range of designs and colors. Thus, while the wlholesalers are relyingfn experience and T::em,1t- , teirJ A. is pr -1bay good. -- A M lA t a,.-

processing systems would perform this function more accurately, but we doniot believe that the potential result-,s--1 would j-1, ust i -y tl a

this stage in the industry's development.

7.20 As noted earlier, one of the most important functions served bytlhe wh.olesaller is thiat of providing credit to his custLomers, IL. subwhlesalers and retailers. While bank credit is used in some cases, in manysales Lhe whiolesaler must accept ttLie credit rL £Lsl\. ' iLnce t1he wholesalersare small, witlh one or two men making all decisions, the entrepreneurialmotivation i s efLfective 'ln providing ,,ood credit Uecisions. ihie whiiolesabLermust know his customers and their finaLncial situations at all times. Toorimucfl creUit can lead tLo deiinquent accounts, while too little credit meanslost business. lIere again, record keeping and decision making procedures

tv4t - . -2-- J_L At, - .-1- - A -_ .-- . :L_.>*are ailLXq UaLteU Wllienl UoIIIpareCU Wi Lt 1U ii1 Ut:CVU.LU(J.)U LOUII LL 11J,:: UUL Llt:

system passes the acid test: it worlks.

7.21 As noted earlier, the wholesalers operate with small staffs andlow overnteaus. WiLh low operatin-g costs anid highi volume, their per unitcosts are very low and we question whether the same function could be per-formed as efficiently withiin the Lextile mill organization.

7.22 The most benieficial feature of tLhe present marketing network isthat substantial competition exists within the system. As an example, 37different wholesalers annually purchase 60,000,000 meters of cloth fromthe tlhree cotton-synthetic mills which make up the Iran Factories Group.Tihese wholesalers compete with eachi other in purchasing, making commitmentsmonths in advance to make sure they will receive their share of the output.In selling, there is also competition withi sub-wholesalers and retailersshopping the market regularly and buying from many competing wholesalers.

7.23 Tlhe one place where competition is weak Is in the less populatedareas of the country. Thiere the smaller cities lhave fewer sub-wholesalersand thie smaller towns have fewer retailers. Ilowever, this is a situationwlhichi is best remedied by better transportation, rather than a change inthe marketing system.

The Cost of Hlarketing and Distribution

7.24 In studying marketing and distribution costs, we reviewed datacovering 24 different fabrics and their 1969 selling prices at three levels:manufacturing, wholesale and retail. These showed total added costs to theconsumer ranging fromi approximately 11 percent to 40 percent. Average mark-ups for the most popular fabrics were 20 percent or less. These figures

-65-

are subiect to question; since retail prires vary widely. In an intenselycompetitive market, retailers take advantage of higher mark-ups on theirmost nonular colors and designs and sell out the slow moving, items at re-duced prices. In addition, we doubt that the retail prices quoted takceinto acrcrnint the !.ig,her nm.rk-ups in effect in remote rural areas. Ourinterviews indicated that mark-ups there were probably 30 percent or more.

7.25 Comparing these costs witlh those in otlher countries indicatesthat Iran's marketing and distrib-ution costs are low. In the U.S.A. themark-up is 50 percent/100 percent on mill prices. We attribute the rela-tively Ilow marketing C:DStS 4in TIran t-o the l;j,i eg-ree of comi-peti t-on whichaI I 1T! I;i Ut I IL U IU!~L LLJI WhiC

exists and to the effectiveness of the small enitrepreneurial ulnits at alllevels in t.he distribu-ion system. In spite of antiuated methods in re-cord keeping and in the plhysical moverments of goods in the warehouses andbazaars, total performance of thle systeim measured against known standardsis good. While we would not wish to discourage improve;nents or mechaniza-tion in the rt,arketing system, we bel'ieve tihat improvemienit of thre marketingand distribution system need not be given too high a priority at this time.

- 66 -

VIII. INTERNATIONAL COMPETITIVENESS

8=1 Tabhl 8 1 sows a suimmarv of fahrir costs nmncred 1tn sPvera1

other countries. Annexed to this report are 31 detailed cost shieets sup-porting tnis summary. Th're summaryc shlows that the cotton sector fabric costs

in Iran are usually as low or lower than most competing countries withthe exceptionr of Turkey whose costs are usually 1ower thnn Iran. Anexamination of the details of Iran and Turkey costs shows that in mostinstances the Turkish advantage lies in a lower labor cost per meter.This lower labor cost is achieved despite about equal wage and socialcosts per hour as are also shon. on the detailed cost sheets. Ho-wever,an examination of the summary of meters per man per hour as shown on Table4. 1 4i ch-apte T5V o ef1,4 t hris r e r Cadecid adAvnt0ag 4., f--na. -a-f

Turkey. This is due to better operating plants in Turkey allowing forhi1gher .,chine effi.ciencies alnong with less workers per meter of tThis is an area that can be greatly improved and the suggested steps areoutlined elsetwhere 4n- thi4s report.

T. n the cases of~ 4 fabrics using polyester f14iber the Tranian. costti.LUAC3.A 'A0.L PLCA . .LC.. A CU .L t. U ~ L A

for raw material while comparing favorably with Turkey is consistentlyhigher t1han other worldA countries reflecting a higher landed fibr piceincluding import duty.

8.3 As in the cotton sector the meters per man per hour for theworsteu sector are cornsistently Lower iL LIran than comUpetLLr .our.trie.

Despite this, on account of the higher labor content per meter of worstedlothi, and low I4ran ian wage rates, LI Ie ranian unit la-or costs are lower

than most other countries. If and when the productivity factor is improvedt L'Ln ia'uv0aLtage'Ln .Laor Uos L *L peIrmLerL shIoulU Ue WLU- leneU. ' Lni sp±LV i II o ithe

labor cost advantages the total cost per meter in the worsted sector isusually higher 'in Iran than other countriLes. In studuy of t I'.e detailed cost

sheets shows that the labor cost savings are more than offset in severalcases by: a higher raw raterial cost incluudng imUport duty on wool, ahigher process material cost in practically all cases and higher overheads.

8.4 Part of the higher process material costs may be due to all thesematerials being imported but the difference is of such m4g8ILuut LItJaL a

further investigation should be made, along with the overhead costs whichalso appear to be more out of line Lhan understandable.

8.5 We would emphasize that any advantages that show in Iranian fabriccosts are the results of low wage rates which more than countervail ineffi-ciencies in operations. Improvements in productivity are therefore imper-ative, if future increases in wage rates are to be absorbed in costs.

- 67 -

8.6 - Chapter II of Volume I, - The Main Report - contains a discussionof Iranian ancl world costs and prices as well as the level of effectiveprotection now enjoyed by the Iranian textile industry.

8.7 - Detailed international cost comparisons are contained in annexesto this report:. Listed below is a cost summary of the styles studied,compared to other countries.

- 68 -

Table 8.1: COST OF FARTrCS(Rials per meter, 1970)

Honga

Mill Fabric Construction Iran Turkey U.S. Canada U.K. Germany Japan Kong

1A Cotton Chit 100 c.m. wide 23.44 19.12 22.48 25.93 26.71 28.82 21.98 20.1823.6 ends per c.m.22.8 picks

IA Viscose 100 c.m. wide 22.55 19.65 23.09 26.62 27.43 9.59 22.58 20.74Printed 27.6 ends per c.m.

19.7 picks n "

1A Viscose 100 c.m. wide 23.08 19.56 22.40 25.47 26.25 28.33 22.L8 20.89Printed 21.3 ends peF c.m.

17.3 picks "

1A Cotton 47.27 57.06 56.93 67.80 65.97 67.26 55.99 52.49Piece Dyed 110 e.m. wide

40.9 ends per c.m.17.3 picks " it

1A Viscose 100 c.m. wide 34.30 34.90 37.87 41.85 42.70 45.73 38.90 36.68Piece 'Dy-' 25.2 en'ds per c.-.

18.9 picks " 'l

lB Cotton Chit 100 c.m. wide 17.50 17.18 20.21 23.30 24.02 25.92 19.76 18.1h22 ends per c.m.19.8 picks per c.m.

lB' Viscose 10 c.m. wide 21.00 20.87 24.529 98.26 290.13 31 223.98 929203

Printed 26.9 ends per c.m.23.6 Dicks "

1C Cotton Chit 100 c.m. wide 21.32 16.56,-19.25 22.07 22.76 24.55 19.09 17.6220.5 ends per c.m.16.5 picks "t "I

1C Cotton Chelvar 155 c.m. wide 26.25 23.28 27.61 31.90 32.75 35.01 26.15 23.9320.5 endA nor G_m,

18.9 picks per c.m.

2A Polyester 100 c.m. wide 28.50 31.07 30.47 35.40 36.29 38.69 28.69 26.12Viscose 42 ends per c.m.Piece Dyed 27 picks per c.m.

- 69 -

Table 8.1:Cost in Rials per Meter (contid)Hong

Mill Fabric Construction Iran Turlcey U.S. Canada U.K. Germany Japan Kong

2A Viscose 92.5 c.m. wide 26.00 21.25 24.97 28.80 29.66 32.00 2h.43 22.43Print 32 ends per c.m.Cloth 21 picks per c.m.

2B Cotton 100 c.m. wide 18.61 18.08 21.26 24.52 25.27 27.26 20.78 19.10Print 22 ends per c.m.Cloth 22 picks per c.m.

23 Cotton 100 c.m. wide 14.27 14.62 17.55 20.40 20.95 22.40 16.46 14.98Chelvar 22 ends per c.m.

19 picks per c.u.

2C Cotton °3 c.. wi de 26.7 2V1.15 25.1 29 a 371 3nm ,I i2.0,Print 40.1 ends per c.m.Cloth 24-picks per c.m.

2C Cotton 100 c.m. wide 22.43 22.64 26.40 30.31 31.26 33.73 26.05 24.02Piece 33.1 ends per c.m.Dyed 17 pickis per c.m.

3B Cotton 99 c.m. wide 17.04 17.82'20.99 24.18 24.98 26.92 20.54 18.95Chelvar 24 ends per c.m.

21 picks per c.m.

3B Cotton 95 c.m. wide 33.98 24.52 28.47 32.65 33.78 36.69 28.68 26.56Piece 36 ends per c.m.

&31 p4c.'a per c .m.

4A Viscose 90 c.m. wide 36.95 L2.11 51.39 57.60 58.75 62.49 5o056 47.21Rayon 82.8 ends per c.m.

24 picks per c.m. -

4A Viscose 95 c.m. wide 26.51 21.68 25.14 28.77 29.67 32.02 24.93 23.04P.4nt 34.4 endau pJer c;.r.

Cloth 16.8 picks per c.m.

5A Polyester 160 c.m. wide 51.40 73.39 64.26 1P.57 74.34 79.81 63.50 59.21Viscose 30 ends per c.m.Piece Dyed 20 picks per c.m.

- 70 -

Table 8.1: Cost in Rials per Meter (contid)

Mlll Fa b ric Cnnsfriirti n Tran Tillrkey TTS -A ad IM. t6

2C Worsted 162 c.m. wide 211.66 230.72 18h.75 186.03 169.55 190.07Cloth 11.9 ends per c.m.

12.5 picks per c.m.

2C Polyester 172 c.m. wide 230.96 275.77 226.h4 237.77 239.h0 216.50Cloth 28 ends ner c m

20.5 picks per c.m.

3A Worsted 160 c.m. wide 389.19 400.55 307.20 301.31 271.67 325.08Piece 26.8 ends per c.m.Dyed 26.8 picks per c.m.

34 Worsteed 160 c.m wldje 3193.-6-9 360.-97 305_25 31-7=21 29-1-35 30-2 )R

Top Dyed 26.8 ends per c.m.26.8 picks per c.m.

3A Worsted 160 c.m. wide 369.37 377.48 323.77 339.08 312.01 317.58Piece Dyed 29.1 ends per c.m.

29.1 picks per c.m.

3C Viscose 155 c.m. wide 185.38 261.48 204.18 214.00 213.15 201.65Wool 21 ends per c.m.

21 picks per c.m.

3C Viscose 155 c.n. wide 157.78 215.4i 156.77 164.20 163.42 163.4LWool llends per c.m.

11nink-g ner c m,

SB Worsted 160 c.m. wide 503.32 592.39 h60.37 455.66 41o.23 479.8356 ends per c.m.33 picks per c.m.

5B Worsted 173 c.m. wide 484.16 391.06 318.75 324.38 296.36 324.27'2 rends per r,m.

20 picks per c.m.

5C Viscose 160 c.m. wide 185.80 313.51 243.28 254.76 253.07 240.52Wool 25 ends per c.m.

22 picks per c.m.

5C Viscose 136 c.. wide 136.30 235.0o7561 117 8.4)Wool 17.5ends per c.m.

15 picks per c.m.

- 71 -

IX. PROJECTION OF FUTURE DEMAND FOR TEXTILES

Introduction and Summary of Findings

9.1 The total expenditure for cotton, wool and knitted apparel fabricis indicated for the future related to total consumer expenditures. The1967 apparel fabric expen.litures of 17.4 billion rials are expected to in-crease to 58.2 billion rials by 1980.

9.2 This nroiection assumes that the estimates for total consumerexpenditures are correct and that expenditures for apparel fabric will in-crease from 4.8 nereent of the total consumer exnenditures in 1967 to 5.5percent of total consumer expenditures in 1980. The elasticity of demandhas been estimated fromn the Bank Markazi's Annual Household Budget Surveyfor Iran, our own calcualations of production and consumption trends forTran between 1964 and 1967, and National Aetcount Statiqtirq for Tran and

other developing countries.

9.3 An average factory selling price of 237 rials per kilo for allfabries existed in 1967. The ralriilation assumes that the Ministry ofEconomy's Annual Indusitrial Survey is correct for meters and rials forcotton and worsted fabrics and is orrect for riials and tons for knitting.

The total rials for 1964, 1965, 1966 and 1967 appear to be correctly relatedto c-onsUmpr pwnPndit-,ros. The averago sQellino priee for fahbi- is. proneted

at 327 rials per kilo in 1980 at constant 1967 prices.

9.4 For the years 1964 through 1967, a shift in demand patterns wasobserved.. WooLen and worsted fabrics were holding their share of the markei:and knitted fabrics were growing at a much faster rate than woven cottonsyst...t fabrics. A shift- in the value and weight of cotton syste... fabrics

was also observed. The present average of 7.5 linear meters of cotton fabr:LcFklo of y bLIn, is U IJ pro Lct to be . .lina meters Ei ... =-. L- I.

9.5 To predict the lont-range result this shift, the consu..mption

patterns for U.S.A. appoarel products in 1961 were assumed to represent theconsum.ption patterns for productsA 4n Iran, sometimUe in the future, for 1t.hIeOsame level of consumer expenditures per capita. The result showed a distri--bution oft proAucts b-etween r.en, wom.en and Iin'ants sir.la to the present---UIA.LIS L ft JL L. LO L.CWCS 5555 tuEL lLt tlJ IS I h.L. t1t LO) LlkO pt00055L

distribution in Iran.

9.6 The expected future product distribution was converted into kilosof fiber bDy applying 196.7 UA.S.A. f b171er consu.mption Io Lhe products proJectel

for Iran. The results are expressed as a percentage distribution by weightbetween fi"5ber otf .knitted and woven proAUC5S. for r.en, womUen, in.fants anL Usome household fabrics produced on the cotton system. The assumption made'Ls tLhat somLetimAe in the flutLure, the Iran consur.er will demand the samIe fibers

and knit versus woven distribution as the U.S. consumer in 1967. Fiber, knit.aSJu w5JvOL LbU&SSUIILUII L.I5dL54CU b±LL4 x I | UdLkO fiL±7Y 1A UVCVLUCU LUULLLL LCM UCLWCCI1

1955 and 1967 for the products projected for Iran. However, by 1967, thepatterns se,e to Lesa'ize.

- 72 -

9.7 The observed shift from cotton woven to knitted fabric in Iranfrom 1964 to 1967 was plotted and compared to the projected position some-time in the future. The trends and the future distribution located aperiod sometime around 1980 as the point at which the shift to the predictedfuture would be completed.

9.8 Past consumption of fabric is shown on Table 9.7, actual and pro-jected expenditures on fabric as a percentage of total private expendituresis shown on Table 9.18 and Table 9.19. Actual and projected consumptionof fabric and tons is shown on Table 9.26 and Table 9.27. The consumptionby fiber, present and future, is summarized on Table 9.31 and detailed forthe future on Table 9.32.

A. Estimated Production and Consumption Expenditures on Textiles

1. Past Production and Consumption 1962 to 1967 - Cotton Fabrics

9.9 Per capita consumption, in meters, for the cotton fabric sector,as estimated by the Iran Ministry of Economy, has been stagnant since 1963,with an actual decrease from 17.6 meters per capita in 1963 to 16.7 metersin 1967. Total consumption, in meters, has risen only 9 percent from 1963to 1967 from 415 million meters to 442 million meters. The total productionfigure includes the production of hand looms.

9.10 The value of the fabric is estimated by the Ministry of Economy,Bureau of Statistics, for local production. The value of net imports isestimated at 20 rials per meter CIF plus 16 rials per meter duty and com-mercial benefit tax. From 1962 to 1967, the value per meter of the fabricconsumed in Iran has gone up 63 percent or 10 percent per year at a compoundrate. (See Table 9.2).

2. Past Production and Consumption 1962 to 1968 - Woolen Fabric

9.11 Per capita consumption in meters, for woolen fabrics has increasedfrom 0.251 meters to 0.445 meters over a five-year period. The total growthin consumption of meters was over 204 percent from 5.8 million meters to11.8 million meters during the five-year period. (See Table 9.3).

9.12 The value of the local production of woolen and worsted fabrics istabulated by the Ministry of Economy in the General Industrial Survey. TheCIF value of the imports is shown with the import data. Duty on importedfabrics averages approximately 200 rials per kilo plus 180 rials per metercommercial benefit tax. Assuming two meters per kilo, 280 rials per meteris added to the CIF values shown for imported woolen and worsted fabrics.The value of imports for 1962 and 1963 was not available and is assumed tohp the same as 1964.

TABLE 9.1

COrTON SYSTEMS FABRIC _PRODUCI'ION AND CONSUMPTION

(In Millions of Meters)

Per Capita Indicator ofYear Production 1MPort Exort Consumption Consurption Self Suff.

1962 304 47.46 0.32 351. 15.3 816.6

196:3 386 31.45 1.96 415 17.6 93. 0

1964 429 15. 44 0. 65 44z4 18. 3 976. 6

1965 423 11. 85 0.23 4335 17.4 97. 2

1966 431 6.23 0. 83 437 16. 9 97. 2

1967 440 3.04 0.68 442 16. 7 99. 5

Source: Production figures from 'Ministry of Economy, Bureau of Stat.istics, Report on theResults of the Annrual Industrial Survey in 1967 (1346), page 104; Import figuresfrom extracts of import statistics supplied by the MirListry of Economy.

- 7L4 -

TABLE, 9.2

ESTIMATED VALUE OF FABRIC CONSUMPTION - C'OT,TON

Local Producti(Dn - - Net Imports _ ConsLumpt:ion

Meters Rials Rials/ Meters Rials Rials/ Rials

Year (000, 000) (000, 000) Meter (000, 000) (D00, 000) Meter (000,_00()

1962 304 4, 311 14.2 47 1,700 36 6,011

1963 386 5, 549 14. 3 3 0 1, C80 36 6,629

1964 429 8, 637 20.1 15 540 36 9, 177'

1965 423 8, 229 19. 5 I I 400 36 8,629

1966 431 9, 871 2. 9 ID 180 36 10,051.

1967 440 :10, 040 2. 8 2 72 36 10,112'

- 7. -

TABLE 9.3

PRODUCTION AND CONSUMPTION - VWOO:LEN FABRICS

(In Millions of Meters)

Per Capita Indicator ofYear Production Imports- Exports Consur n Consurnption Self Suff.

1962 3.184 2.600 - 5.784 .251 55%

1963 4.144 2.600 - 6.7.44 .284 61%o

1964 4.263 3.400 - 7.663 .314 56%

1965 c.747 4. 200 - 9. 9.47 .396i 58%o

1966 r. 449 3. E00 - 11. 249 .437 66%

1967 r.795 4. 000 - 11.795 . 445 66%o

S'ource: Product;ion figures frorn Ministry of Economy, Bureau of Statistics, Report on theResults of the Annual Industria:l Survey in 1967 (1346), pagre 104; Import figuresfrom extracts of import statistics supplied by the Ministry of Econom-y.

- 76 -

9.13 The estimated value of the consumption of woolen and worstedfabrics increased from 2,031 millioni rials in 1962 to 4,286 million rialsin 1967. The percentage increase was 210 percent or 16 percent per year.(See Table 9.4).

3. Past Production and Consumption 1962 to 1967 - Knitting Industry

9.14 Statistics are available for the production of soft wool blouses,cotton blouses and jackets and lhosiery (see Table 9.5). The data on softwool blouses for 1963 does not seem to be correct and an average figurebetween 1962 and 1964 has been used for the calculations of past consumption.Similarly, the data for cotton blouses and jackets does not appear to bereasonable for 1962 and 1963. An average for the four years 1961, 1962,1964 and 1965 has been assumed for these two years.

9.15 A listing of knit goods manufacturers with 40 employees or more isshown in Annex 8. 1/ From this data it has been estimated that approximately15,250 pairs of hosiery equal one ton.

9.16 Imports are not authorized for the above items. We can, therefore,assume that local production equals consumption. As shown on next page, theknitting industry has increased in production over four and one-half timesfrom 1962 to 1967.

4. Summary of Past Production and Consumption 1962 to 1967 -Woven Fabrics and Knitting.

9.17 The total value of consumption of woven fabric and knit goods hasdoubled during the five-year period 1962 to 1967 from 8.7 billion rials to17.3 billion rials. The growth rate has been approximately 14.8 percentper year.

9.18 Wocolen and worsted fabrics lhave increased a little faster thanthe total market at anoroximatelv 15.2 Dercent per year in meters and 16percent in value.

9.19 Cotton fabrics (including cellulose blends) have increased approxi-ninto1v 4 8 percent nper vyer in niters anid 11 nercent ner year In value. Theincrease in value could represent price increases for the same fabrics ora channge in the mix with fine rounts,q mOrFe expensnive finished or wider widths

I/ All t-o this -h,ter nat the -nA -f thD ph.-rzjrA. | A s .. w4-t SV*. - -*.- - - - - - - - - -

- 77 -

TABLE 9.4

ESTIMATED VAL,UE OF FABRIC' CCNSUMP'TION - WOOL AND WORSTED

Local Production Net Irnports ConsumptionMeters Rials Rials/ Meters Rials Rials/ Rials

Year (000, 000) ('000, 000) Meter (000, 000) (000, 000) Meter (000, (00)

1962 3.184 631 197 2.600 1,400 553 2,031

1963 4.144 831 201 2.600 1, 400 5'53 2, 2'31

1964 4. 263 932 218 3. 366 1, 860 55'3 2, 792

196'5 5. 747 1,289 224 4. 243 2, 270 536 3, 55'9

1966 7.449 1,913 258 3.657 1, 380 50)4 3, 293

1967 7.795 2,171 273 4, 028 2, 095 52'2 4, 286

1968 2.912 1, 395 480

- (8 -

TIARLE ,

T-1 , c -rThTIf-' I fC-V Al A KT 1~ I T A T rt i T c i *\ I; yI'r FTr' II) 1'U T1 1I'V T T EI irl MA /,TCIP DJ %-- I JJIN IANL- VAT,[ IE " SJL' I. iIJ2,Li I L1. I I1iEL' IT EMIVIS3

Cotton BlousesSoftL Wool Blouses -and _tlacki-et's Toir

Year Tons Rials TTons Rials Pairs Rials(000) (000) (000)

I959 512 166,714 , 37 '257, 87 20, 572 423,,907

1960 543 181,042 788 148, 941 23, 895 504,1611961 389 1, 320, 795 728 139, 838 9, 098 195,4891962 320 110,122 9,80.0 1,.911,872 14,717 397,3511963 1 , 983 690, 211 ', 548 1, 879!,787 27, 758 611,4251964 _5 287 ,fi5 509 1 06 382 37,968 81 6; 081

1965 625 397, 049 576 210, 255 63, 828 1, 599, 223i966 1, 335 998, 741 1,344 47O,675 71, 420 1, 571, 240

1967 1, 580 1, 1 60, 650 1,69 99 403,030 87, 246 1,480,582

T owe Is BlanketsTons Rials Pieces Rials

(000) (000)

1959 365 83, 835 994, 952 422,0081960 460 103,186 810, 110 351, 8301961 350 83, 827 780, 444 345,1741962 250 60, 687 503, 511 225, 5731963 330 , 022 A 25,593 193, 2191964 220 33, 810 1, 204,702 488,4161965 913 137, 022 974, 801 436, 0701966 554 61,007 1, 201, 276 477, 6911967 656 9'7, 720 1, 285, 922 683, 793

Source: Ministry of Econom-y, Bureau of Statistics, Report on the Results ofthe Annual Industrial Survey in 1967 (1346), page 104.

- 79 -

TABLE 9.6

ESTIMATES OF KNIT PRODUCTION AND CONSUMPTfON

1962 to 1967

1962 1963 1964 1965 1966 1967

H-oc\ie1-ry - P1,A717 27 758 37 Q,P 8 6 9,8 71 A9f) 87 9AIQ

(000)

Hosiery - Tons 963 1,815 2,422 4,180 4,670 5, 721)

Cotton - Tons 650 650 509 576 1,344 1,699

Wool - Tons 320 377 435 625 1,385 1,5840

- - -Tot~al - t ons oq, Q9 2, 842 3,36, 381 7, 399 8, a99

Tnrdex 100 147 174 978 382 464

Hosiery - Rials 397 611 816 1,599 1,571 1,481(000, 0100)

CotLon - Rials 151 151 106 210 474 40;3(000, 000)

Wcool - Rials 110 199 288 397 999 1,161(000, ocio)

Total - Rials 65R 96 1s ,210 2,206 3,044 3, 045(000, OC0)

Index 100) 146 184 336 458 458

97.20 The knitLing industry has had a very dynamic reported growtn wiLnan increase of 36 percent per year in both tons and value over the five-yearperiod from 1962 to 1967. The production of this segment of Lhe textileindustry appears to be growing at the expense of the woven cotton fabricsector.

9.21 The consumption of towels, blankets and other home furnishingtextiles has not been analyzed. The reported figures for production appearvery erratic and may not be reiiabie. We will assume that thie consumptionof these products is independent of the consumption for woven cotton andwool fabrics and knitted products. This assumption is not entirely correctand may create minor distortions in the projections of demand for the othersectors of the textile industry.

9.22 A significant increase in the reported value of cotton fabrics isshown for the period 1963 to 1964. The average price increased from 14.3rials per meter to 20.1 rials per meter. The data included estimates ofproduction and the value of production for the hand loom industry.

TABLE Q.7

SUMMARY OF CONSUMPTION OF WOVEN A'ND KNIrTED FABRICS

Cotton Fabric Woolen Fabric Knitted Fabric TotalUnits Units

Metiers Meters UnitsY,ear (000, 000) Index (000, 000) Inclex (Tons) Iniex Unit Index

1 962 351 100 5.8 100 1,933 100 -

1963 415 118 6.7 115 2,842 147 -

1' -'6 444 126 7.7 132 3,366 1741965 435 124 9.9 170 5,381 278 -

1966 437 124 I1.2 193 7, 399 382 - -

1967 442 126 11. 8 203 8, 999 464 - -

1962-1967G;rowth Rate/Year 4.8% 15. 2% 3f6i0 %c

1 964-1967G:rowth Rate/Year 0° 15. 1% 38.3%

Rials(000, C000)

1962 6i,011 100 2,031 1010 658 100 8, 700 10101963 6,629 110 2,231 110 961 146 9,8:21 1131964 9',177 153 2>,792 137 1,210 184 13, 179 1521965 8,629 144 3,559 175 2,206 1336 14,3394 1651966 10,051 166 3,293 162 3, 044 4958 16,388 1881967 10,112 167 4, 266 210 3,045 458 17, 323 199

1 962/1967Growth Rate/Year I I1. 0% 16.0% 35. 8% 14. 8%

1 964 /1967Cr-th Ratc/'ear 3. l'o i5. 13 b 35. 2% 9. 5%

- 82 -

9.23 Because of apparent errors in reported data, the value andproduction of' knitted wool blouses had to be estimated for 1963 andcotton blouses had to be estimated for 1962 and 1963.

9.24 Therefore, the data for the four years 1964 through 1967 isprobably the most reliable and the data for 1962 and 1963 will not beused. Using these four years, the three sectors are growing at the rateof 9.5 percent per year. Cotton fabrics did not increase its meters butshowed a 3.1 percent per year increase in value. Woolen and worstedfabrics increased at 15.1 percent per year in both meters and value. Theknitted fabrics increased 38.3 percent per year in tons and 35.2 percentper year in value.

TABLE 9.8

SUMMARY OF GROWTH INDEXES 1964 - 1967WOVEN AND KNITTED FABRICS

Cotton Fabric Woolen Fabric Knitted Fabric TotalUnits Meters Value Meters Value Tons Value Value

1964 100 100 100 100 100 100 100

1965 98 94 128 127 159 182 109

1966 98 109 145 118 219 248 124

1967 99 110 153 153 267 248 131

5. Analysis of Clothing E,xpenditures 1963 to 1968

9.25 In order to estimate future demand for cotton woven fabric, privateconsumption expenditures in rials will be analyzed.

a. Data from Other Countries

9.26 Expenditures on clotlhing and shoes can normally be expected toremain a relatively fixed percentage of private consumption expenditures,excluding food and beverages. National accounts data from Iran, Greeceand Jordan show exuenditures on clotlhinc and shoes totaling approximately22 percent of non-food expenditures. Future fabric expenditures in Iranshould be closelv related to nrivate; non-food exnenditure.

9-27 For Grpece; with a higher r.NP/canita- clothing and shoes renresentapproximately 13 percent of total private consumption expenditures ratherthan approximately 10.5 percent as s!nown for Iran and Jordan

- 8.3 -

TAB LE 9.9

RELATIVTE EXPENDITUJRE ON CLOTHIING AND SHOES

Clothing and Shoes as a % ofGNP/ rrivate

Capita Population Consumption PrivateCountry Year $ Million Less Food Consumption N. I. GNP

Iran 1966 263 25.28 22.1 10.5 8.4 7.2

1967 283 26.28 21.4 10.3 8.0 6. 9

Jordan 1965 265 1. 91 22.7 10. 8 9.5 8. 3

1966 263 1.98 20. 9 10.6 10.1 8. 6

Greece 1965 690 8.55 21.4 12.2 10.9 8. 9

1966 759 8.61 22.0 13. 8 11. 2 9.1

1967 808 8.72 22.3 13.0 11.3 9.1

1968 858 8.80 22.2 13.2 11.6 9.2

Source: U. N. Yearbook of National Account Statistics - 1970.(See Aninexes 1, 2 and 3j).

- 84 -

b. Urban Hiousehold Expenditures on Clothing, 1959 - 1968

9.28 The Bank Markazi Iran conducts an annual family budget survey forurban households. In 1959 expenditures on clothing (shoes apparently ex-cluded) represented 10.3 percent of total expenditures and ZU.3 percent ofnon-food expenditures. In 1968 expenditures on clothing represented 10.1percent of total non-food expenditures. Total expenditures per householdincreased 28.9 percent while clothiing expenditures increased 25.7 percent(2.7 percent per year compounded).

9.29 The urban hiouselhold survey generally confirms the national accountsstatistics. Clothing expenditures should represent a relatively fixedpercentage of total expenditures. However, as total expenditures increased28.9 percent in nine years, clothing represented a slightly smaller pro-portion of total expenditures for the urban sample because of the emphasison education, travel and transportation, personal care and medical care.

c. Urban Elxpenditures per lIousehold - Hligh, Medium and Low Income

9.30 Thie clotlhing expenditures in Iran in 1968 represented a higherpercentage of total houselhold expenditures in the high income groups(10.8 percent) than the low income groups (8.1 percent). This seems toindicate that as total expenditures increase in a household, clothingshould represent an increasing portion of these expenditures. This agreeswith the statistics from Greece.

d. Urban and Rural Expenditures/Rousehold

9.31 Additional details were available (translated from Farsi for themission) of urban and rural household expenditures on clothing from theBank Markazi annual houselhold surveys. The sample of urban householdsshowed clothing and shoes averaging 816 rials per month per household or18.6 percent of non-food expenditure, and house furnishings (which wouldinclude some fabric) averaging 8.2 percent of non-food expenditures (357rials/month/household). Clothing and shoes seem to represent an increasingproportion of non-food expenditure for urban households. Although the samplemay not be valid for analysis of growth in total urban expenditure, non-foodexpeniditures increased at a compound annual rate of 4.3 percent while clothingand shoes increased at a compound annual rate of 6.0 percent.

- 85 -

TABLE 9.10

AVERAGE EXPENDITURE OF' URIBAN HOUSEHOLDS

BY EXPENDITURE CATEGORIES

1959 1968Expenditure Expenditure Percent

ExDenditure Categories in Rials % in Rials % Changes

Total expenditures 85,375.0 100. 0 110, 029.3 1 0 0.0 2 8.

Food 41,551.0 48.7 50, 778. 1 46.1 22.2

Housing 9,555.0 11.2 11,851.3 10. 8 24.0

Clothing 8,858.0 1Ci.3 11,136. 2 10. 1 25.7

Household,~1 opratin 5,212. 6. 1 6, 851.5 6. 3~1.4

House furnishings 3,956.0 4. 6 4.250.5 3.9 7. 4

Travel & transportation 2, 869.0 3.4 5,382.1 4. 9 87.6

Personal care 2,435.0 2.9 4,062.0 3. 7 66. 8

Medical care 2,373.0 2. 8 3,300.0 3.0 39.1

Education & reading 859.0 1.0 2,290.7 2.1 166. 7

Miscellaneous 7,707.0 9.0 10,126.9 9. 2 31.4

Source: Bank Markazi. Iran, Economic Statistics Department, UrbanHousehold Budget Survey in Iran, 1347.

- 86 -

TABLE 9.11

PERCENTAGE DISTRIBUTION OF CLOTIIfNG EXPENDITURES

OF URBAN HOUSEHOLDS BY INCOME GROUPS, 1968

Low' Middle HighAverage Income Income Income

Expenditure Groups Household Group Group Group

Percentage of Total Expenditures 10.1 8.1 10.1 10. 8

Percent 100.0 100.0 100.0 100.0

Women's Clothing 29. 0 26. 2 25. 2 33. 4

Girls'- Clohing ( 16 I s I0 97 0 8.0 0 0'J I1.1 Z) J.-UL IIIII g kUIUU I 10 'y~cJ t: I I0.0 v 3. I 0* 0 0.

Men's Clothing 36-4 39=1 38.7 33 6

Boys' Clothing (under 16 years) 11. 5 14.7 13. 2 9.1

Children's Clothing 0.9 1.3 1. 0 0.6

Clothing Materials and Services 14. 2 9.0 13. 1 16.5

NOTES: U1) Families earning less than 50,000 rials per year.

(2) Families earning 50, 000 to 150, 000 rials per year.

(3) Families earning more than 150, 000 rials per year.

Source: Bank Markazi Iran, Economic Statistics Department, UrbanHousehold Budget Survey in Iran, 1347.

- 87 -

9.32IL Rurat expend.iLures on cIothiUg aLnu shoes averageu 506 rials permonth per household or 29.2 percent of non-f'ood expenditures over thefive-year period 1964 to 1968. Household furnishings averaged 11.0 percent:of non-food expenditures. The expenditures on clothing and shoes and house-hold furnishings seeni to be decreasing as a percent of totai. non-food ex-penditures, with significant changes in 1964 and 1968. The samples may not:be valid for ainalysis of growth in expenditures. However, they show a totaigrowth of 40 percent in non-food expenditures for the four years or 9 percentper year compounded and a growth of only 3.8 percent (0.3 percent per yearcompounded) in expenditures on clothling and slhoes. If 1968 is excluded, thtegrowth in non-food expenditures was 63Z over a three-year period (18 percentper year compounded) and clothing and shoes expenditures increased 45 percent(13 percent per year compounded). The 1966 census estimates that 60.3percent of the total households were rural in 1966. The Bank Markazi esti-mates 62 percent of the hiouseholds were rural in 1965 and 1966. If we assume61 percent rural and 39 percent urban, for the year 1965 through 1968,clothing and shoes represent approximately 22 percent of total non-foodexpenditures and is reasonably consistent over the four-year period.

9.33 Expenditures on house furnishings averaged approximately 9 percen.tof total non-food expenditures.

e. Summary of Available Data on Clothing and Shoes Expenditures

9.34 Three basic sources were available. The International FinancialStatistics (U.N.) for 1966 and 1967, the published Urban Household Surveyfor 1959 and 1968, and also detailed urban household surveys, in Farsi, for1965 through 1968 for 'both urban and rural households. The data seems tosupport the thesis that expenditures on clothing and shoes are closelyrelated to total non-food consumer expenditures.

- 88 -

1VABT,E 9.12

URBAN HOUSEHOLD EXPENDITUTES

(:Riais/Month)

Total Clothing % Houeshold %Year Non-Food & Shoes of TNF Furnishings of TNF'

1344 (1965) 4,156.1 769.6 18.50/o 356.3 8.6 lo1345 (1966) 4.442.9 800. 9 18.1% 363.9 8.2%1346 (1967) 4,295.2 780.3 18.2% 361.2 8. 4%1347 (196O8 A 4,6A 4 a 151 10o l '3A90 3 7 ,5

Total 17. 578.8 3,265.9 18. 6% 1,430.7 8.2%

Growth AnnualGrowth Rate 4. 3% 6. 0% (0. 7%)

RURAL HOUSEHOL,D EXPENDITrURES/MONTIT

1343 (1964) 1,016.8 341.8 33.6% 121.1 11.9%1344 (1965) 1,250.6 367. 1 29.4% 130.0 10.4%1345 (1966) 1 595. 6 475.4 29.8% 162.0 10.2%1346 (1967) 1,662.4 494.1 29.7% 202.9 12.4%134A'7 1iCIL'OX 1A 412A 0 35. 2)A 71 14.0 5 10 5.01

1 '1 'LJO ,'t6± '. ( -)0± d/ L'±. LUi. " /U

Tntal fi 950 2 2,030 9 29 2%n 765 5 11.0%o

Compound AnnualGrowth Rate 9. 0% 0. 8% 5.5%

Source: Bank Markazi Iran, Economic Statistics Department - HouseholdBudget Surveys (in Farsi). (For further breakdown, see Annexes4 and 5).

TAB3LE 9..13

AVERAGE RURtA, AND U-r13AN EXPENDITURES

(Rials/Month)

1 9i65 1 966 1 967 1968iYear 1344 1345 1346 1347

Urban total non-food/household 4,156 4,443 4,295 4,6 85

Rural total non-food/household 1, 251 1,596 1,662 1,425r

Average (61% rural)/household 2, 383 2, 705 2, 672 2, 698

Urban clothing & shoes/household 770 801 780 915

Rural clothing & shoes/household 367 475 494 3 53

A evn ( 1 Ot1 r"--I 5AouseIho l 7 R9A IV

Clothing & shoes as a 0/) of N 0 22. 0 22. 2% 22. 6% 21 .22 ",l%

Urban household furnishlings/ 356 364 361 249

household

Rural household furnishings/ 132 162 203 15()household

Average (61% rural)/household 219 241 264 228

Hroushold furnishings as a % 9. 2 8. 9% 9. 9% 8. 5"1of T:NF

- 90 -

9.35 As expenditures increase, the rural population, with lower totalexpenditures per household, should spend a smaller percentage on food anda larger percentage of total expenditures on clothing.

9.36 The urban population should also spend a higher proportion of totalexpenditures on clothing and shoes as total expenditures increase. This isshown for the low, medium and high expenditure groups on Table 9.11, andalso indicated by comparing Greece to Iran (Table 9.9).

9.37 We can, therefore, expect expenditures on clothing and shoes toincrease from the present average of approximately 10 percent of totalconsumer expenditures to something in the range of 11.5 percent to 13 percentif total consumer expenditures double or triple in the future.

6. Comparison of Past Total Consumer Expenditure to ReportedTotal Production and Consumption

9.38 Total private consumption expenditures increased at a rate ofapproximately 7.8 percent per year from 1964 to 1967 or from 288 billionrials to 360 billion rials. The total increase for the four-year period was25 percent. The increase in the estimated value of consumption of woven andknitted textiles is 9.5 percent per year from 1964 to 1967 for a total in-crease of 31 percent for the four-year period. The time period of fouryears is short because of the questionable reliability of data prior to 1964and because no reliable data is available on production past 1967. However,the results are as could be expected with the total consumption of wovenfabric and knitted products increasing at a faster rate than total consumerexpenditures.

- 91 -

TABLE 9.1)4

SUMMARY OF lItAN CLOTHING AND ShIOES EXPENDITURES

AS A PERCENTAGE OF TOTAL CONSUJMER EXPENDITIURES

AND TOTAL NON-FOOT) CONSUMER EXPENDITUlRES

a195 -I5 ao 1967 -I9A

- % % - °,10%(l

Tct. TNF Tot. TNF Tot. TNNF Tot. TNF Tot. TNFV

tnt. Financial - - - 10.5 22.1 10.3 21.4 - -

Urban Household 10. 3 22.2 - - - - - 10.1 18.8

Urban Household - - - 18.5 - 18.1 - 18.2 - 19.5.. c: . 1' %,\ a

Rural Hlousehold - - - 29.4 - 29. 8 - 29. 7 - 24. 7Surx vey (Farsi)

Average - - - 22. 0 - 22.2 - 22.6 - 21. 2

(61% Rurl)C.

- 92 -

TABLE 9.15

TOTAL PRIVATE CONSUMPTION COM'ARED TO WOVEN & KNITTED FABRICS(Billions of Rials)

Private FabricConsumption as a % of

Growtlh Cotton Woolen Knitted Growth Total PrivateYear Total Index Fabric Fabric Fabric Total Index Consumption

1964 288 100 9.2 2.8 1.2 13.2 100 4.6%

1965 315 109 8.6 3.6 2.2 14.4 109 4.6%

1966 339 118 10.0 3.3 3.0 16.3 123 4.8%

1967 360 125 10.1 4.3 3.0 17.4 132 4.8%

Average 7.8% 9.5%Growth/Year

9.39 Reliable data is not available on the apparel industry in Iran.It is, therefore, not possible to relate total consumer expenditure to thevalue of total consumer expenditure on clothing and shoes. Clothing andshoes should represent approximately 10.4 percent of total consumer expen-ditures. If shoes and miscellaneous items are removed, clothing aloneshould represent 7.6 percent of total private consumer expenditures (Annexes4 and 5 and following table). The value of the fabric, without wholesaleor retail mark-up averages approximately 4.7 percent of total consumerexpenditures. The estimates for tabric consumption, therefore, representapproximately (4.7 divided by 7.6) or 61 percent of the estimates for clothingconsumption zt the consumer level. If finished knit products are subtractedfrom both the consumer expenditures and thie fabric production, approximately14.4 billion rials of woven fabric (factory prices) is consumed as 23.5billion rials of woven fabric clothing at the retail level. Woven fabricrepresents 61 percent of the expenditures for clothing made from wovenfabric. This appears to be correct. The remaining cost of clothing wouldbe distribution costs, retail and wholesale mark-ups, trim, making costsand packing materials.

- 93 -

TABLE 9.16

CLOTHING EXPENDITURES RELATED TO TOTALCLOTHING AND SHOE EXPENDITURES

(Rials/Month) 1968

Urban RuralGeneral GeneralAverage Percentage Average Percentage

Shoes 146.4 24.6 85.2 24.3

Jewelry and Misc. 21.4 3.6 5.9 1.7

Sub-Total 167.8 28.2 91.1 26.0

Men's clothing 232.5 39.2 142.5 4L08

Wjnmon's C:lothin- 153.0 25.7 98.5 28.1

Children's Clot:hIng L1.0 6.9 17.9 5.1

Sub-Total 426.5 71.8 258.9 74.0

Grand-Total. 5a4. 100.0 '30 A00 .0

Source: Annual Survey of Household Expenditures (1968, Bank Markazi.

B. Estimated Future Demand for Textiles

1. Reliability

9.40 We have attempted to establish a reliable base for present textileproduction and its values and related this consumption to total privateconsumption. Many estimates had to be made. The primary source of infor-mation has been the Ministry of Economy's annual industrial survey and theBank Markazi annual survey of consumer expenditures. The reliability ofthe data can not be determined but in total it appears to be correct. How-ever, the projections should not be assumed to be valid without a margin oferror.

- 94 -

2 EsKtimates of Fututire TotaI ronsuRmer Expe-nditturpQ on Fabric-

g.-41 PrnosectIonn are available on total -ncn.suPer expndnilture toi ?980and GNP/Capita to 1982: (See following Table 9.17). GNP/Capita is expectedto rise frnm anpnrovimate1y $287 in 1Q9Q tn $634 in t982, at constant prices.Relating this to the data for Greece, expenditure on clothing and shoesshould rise from th present 10.1 percent of cntot consum.ermepnditr to

approximately 11.8 percent of total consumer expenditures. This wouldnrim:arf 1t, nrntir lmOrsco -- enn -1t-rno nn fod r--1, AvoAa- n 0 p nnreont

total expenditure.

9.42 Fabric value is estimated to be 4.8 percent of total consumerexpendlture (1966 and 1967). If the relatlonshlp of fabric to clothlngexpenditures (presently estimated at 64 percent) remained constant, fabricconsumption should increase to approximately (11.i8 A4d4ded by 10.1) x4.8 percent or 5.6 percent of total consumer expenditures in 1982. Fabricdemand should increase from. 17.3 b411itor, rial's in 1967 to 58.2 bi.llon rialsin 1980 (see Table 9.18 and Table 9.19). This rise in incomes and expendi-tures sh0OulA increase the demand "or industr4ally proAuceA clothing anAdecrease the occurence of home sewing. However, fabric value should remainal approx4mately 64 percent of clothinS expenditures even if9 10n- --- t-15 percent of the apparel demand is satisfied by industrial apparel pro-Auct"on by 1980.

J ~±Il~ldXt: LUL UuL c: L>UhI:bU[LL:: 1PLpLU1LU L *U Li t: LL -LLI,. WLUJ

and Knitted Fabric

9.43 A shift in demand is taking place with knitted fabrics growingIC 1.fNet tc, nr~%Laster than total consumption of fabric. Only four years (1964 to 170o)

of reasonably reliable data could be developed. This is not enough toestablish the trends for fabric consumption in 1980 between fabric pro-duced on the woolen and worsted systems, cotton systems and knitted.

9.44 One method which can be used, is to assume that the demandpatterns (distribution of apparel products, woven versus knitted, andthe fiber content) will be, at some time, the same in Iran as in othercountries in which detailed reliable data is available.

TABLE 9.17

IRAN - CONSUMER EXPENDITURES ANI) POPULATION

(1963 to 1982)

GNP/ Consumer Expenditures - Billion Rials Powulation - MillionsCapita % % %

Year Rials Total Growth Urban RuralL Urban Total lUrban Rural Urban

1965t 255i IL3.0% 154 101 60%1964 288 9.3 170 118 59196,5 31 5 7.6 181 134 571966 339 6.2 193 146 57 21i.1 919 16.2 38%1967 360 1]5.0 213 147 56

196E8 41.3 7.2 235 178 571969 21,600 4413 7.9 269 174 61 2 8.7197C0 478 6.81971 51C) 8.01972 24,400 551 8.0 31.1 IL3.2 17.9 42%

1 973t 595 8. 21974 644 8.91975, 699 8.91976 760) 8.01977 33, 000 81 9 7.8 34. 5

1978 883 9.21979 966; 9.31980 1, 05819811982 48, 000 41. 4 21.4 20.0 5i2 %

Source: IBRD preliminary estimate! of savings and investrment model. Expenditures t]hrough 1969are at imarket prices. Future projections are at constant prices.

- 96 -

TABLE 9.18

T. I' rT1AIT A mrr I'% .C-f-0,T QTT A wr~' L T), U'TI\II-TrrT T TI-) LI'Q f(%T', JIC'lr'T LThT.LJ I IIV LtI I. LJIJ 1 S1%k..JL N "J Lu IV1 !L A, L.L1Zx1 I.2i 1 i ' J_. I I L.J k-)±N VY'.J'.j. L, LLIN ,

COTTON AND KNITTED FABRIC

(Billions of Rials)

'T'otal Value of FabricConsumer as a U/o of Total Estimated

Year Expenditures Expenditures Value of Fabric Index

1964 288 4.6 13= 2 76

1965 315 4.6 14.4 83

1966 339 4.8 16.3 94

1967 360 4.8 Actual 17.3 100

1968 413 4.9 Pronjected 20.2 117

1969 443 Actual 4.9 21.7 125

1970 478 Projected 5.0 23.9 138

1971 510 5.0 25.5 147

1972 551 5.1 28.1 162

1973 595 5. 1 30. 3 175

I 07A r,A A R A 10

1975 699 5 2 36.3 210

1976 760 5 3 40.3 233

1'977 81'9 5.3 43. 3 250

1978 883 5.4 47.7 275

1979 966 5.4 52.2 301

1980 1,058 5.5 58.2 336

- 97 -

TABLE 9.19Billions Billionsof Riots of Rials

1,200 -- 60

1 OTAL CONSUMER EXPENDITURE' ICOMPARED 'TO ESTIMATED EXPENDITURES

LON AlPPAREL Cl-OTH AND BECI SHEETING V 50

E,oo0 - r CONSUMER EXPENDITUFRES 40OhN APPAREL AND BED SHEETING FABRICS 40(FACTORY PRICES - CONSTANT) \00

Rlght Sca/le

600- 30

fi°Po°' Pr/ c/ions * iX 3

r \TOTAL CONSUMER EXPENDITURES(CONSTANT PRF.CES 7

400 - Left Sc/le - 2 0

200 1 T 0

0 - - - - - -0

1964 1966i 1968 197T0 197 2 19 74 1976 1978 1980

- 98 -

9.45 Detailed data is available for the USA on actual consumption of

clothing and footwear products for various income levels and age groups.

Reliable data is available for expenditure per household down to $1,000per year. The data was extrapolated down to $250 per year as shown onthe following tables (9.20 and 9.21) and used for comparing the projections

made for Iran.

-99 -

TABLE 9.20

$20 0

F EXPENDITURES ONT CLOTHING ANTD FOOT'WEAR

Breakdown by Age and Income 16-17 yrs

Men - B3oys - ]nfants

$10 -,

18-64 yrs

12-15 yrs

~ $ 1 0 0 10 0

0 $1'iOO $2065 y$rs & over

6-11 yrs

I,,sII .......................................................................................... 2- Ys

$530 00.,0 lsl

~ ..........

............

$5 00 $1500 $2500 $3500 $4500

ANNULAL EXPENDITURES PER HOUSEHOLD

- 190 -

TABLE 9.21

$200

EXPENDITURES ON CLOTHING AND FOOTWEAR o 16-17 yrs

B:reakTdown1 byv Age and Income

Wo,men & Girls 0

$15C 018-64 yrs"

12-15 yrs

on oi m'00 65 yrs &00 over,

10 ,6-11 yrs

:$1000

$2-> yrs

$ta - - --

$50 .......................................... .. - r

$50,

-10

$0 .

$500 $1500 $2500 $3500 $4500

AN.NUAL EXPENDITIJRES PER HOUSEHOLD

- 101 -

9.46 For Iran, tcotal urban expenditures per household in 1968 are esti-mated at 110,029 rials. per year or approximately $1,460 per household of 5.0persons. (See Table 9.10, page ----. ) Clothing and footwear expenditurestotalled 11,136 rials or approximately $147 per year per urban household.Rural households avera5ged 494 rials per month on clothing and shoes in 1977or approximately 5,930 rials per year or $79 per year (Table 9.12).

9.47 The 1966 census data and the IBRD estimates of total rural and ur-ban expenrA4.dLtures for the samie year yi.eld average ruraLl expendiLtures of $625per year per household. Urban households averaged $1,310 per year. The cam-

-ined average was c890o per year per household, or $17 per capita 'see Tauie9.22).

9.48 The projections for 1980 are for a population of 39 million and1,053 Ui.Llion r'Lals iLni consumer expend±Litures or 27I,100 rials per capita. ILthe household size remains constant at 5.0 persons per household, averageexpendiLtures per householU will be approximately 135,500 rials or $1,i90 perhousehold or $358 per capita.

Table 9.22: CONSUMER EXPENDITURES PER HOUSEHOLD(1966)

Rural Urban Total

A. 1966 Census

Population (thousands) 15,384 .9,715 25,079# Households (thousands) 3,085 1,946 5,031Persons/jhousehoiLd 5.0 5.0 5.')

B. LBRD Estirnate

Total consumer expenditure 146 193 339(billion rials)

Total consumer expenditure! 47,300 99,100 67,500household (Rials)

US$ at 75.75 riaLls/$1 $625 $1,310 $89()

C. Consumer Expenditure Survey (1966)

Total expenditures/household N/A N/A(rials)

Total non-food expenditures! 19,150 53,250household (rials)

Total clothing and shoes ex- 5,700 9,612penditures/household (rials)

US$ at 75.75 rials/$1 $75 $127

- 102 -

9.49 Between the 1966 average of $890 per year per liousehold and $1,790per year per hiousehold, the USA data indicates thiat men's and boys' clothingshould represent the largest percent of clothing expenditure. The distribu-tion in 1968 from the survey of household expenditures, confirms this assump-tion.

Urban RuralRials/ Rials/Month % Month

Men's clothing 232.5 55 142.5 55

Women's clothing 153.0 36 98.5 38

Children's clothing 41.0 9 17.9 7

Total 426.5 100 258.9 100

The clothing products (along with some household cotton system textile pro-ducts) presently consumed by the USA population has been tabulated and sortedby level of income and expenditures for the year. 1/ The products consumedby the USA population with annual expenditures of $314 to $470 per capita($1,000 to $1,500 per household) in 1961 could be assumed to represent thebasic products which will be demanded by the Iran population in 1980 witth anaverage expenditure per capita $358 per year or $1,790 per household.

9.50 After tabulating the basic products, for each age and sex group,they were converted into weight (kg) using average weight per product whichwas available. The weight of the products was distributed into fibers, usingaverages fromi the USA for 1967. 2/

9.51 The results show that the demand, by weight, for apparel productsand bed sheeting should be approximately 73.7% woven products and 26.3%knitted products. The distribution by fiber slhould be approximately 55.7%cotton, 7.9% wool, 10.2% artificial (cellulosic) and 26.2% synthetic (poly-ester, rayon and acrylic). (See Table 9.23).

9,52 The tfnhnlation incltides 211 annpro1 nroduticts nltis bed sheet£ii.Excluded are rugs and carpets, blankets, towels, furniture upholstery, cur-tAin, annnAreil lining matpriAlq_ nArrow fnhricrs textiles userl in footwear

and handbags and bandages. These special products may represent 40% byweight o the ro totl textile fib-er uscedA fnr non-industrial producf-tsQ_ Tndhus-trial products (tire cord, cably wrapping) and semi-industrial products(tents and tarpollns, agricultural bags, etc.) have been excluded.

1/ US Bureau of Labor Statistics 1967.

2/ Textile Organon and AAMA survey of apparel production 1968.

- 103 -

TABLE 9.23

IRAN - APPROXIMATELY 1980

ESTIMATED DISTRIBUTlON OF DEMAND FOR

APPAREL PRODUCTS AND BED SHIEETING

/,o Distribution By Fibers

Woven Knit Total

All. Fibers 73.7 26.3 100. 0bo s A II A r /iviii O If~ I L.L .0 OMveinis & b)oysl 44.1 l2 E

Infants 4.4 2.2 6. 6Women's & gi:rls' 18. 3 11. 3 29. 6Hou sehold 6. 9 - 6. 9

eOnffn 41. 5 14. 2 55. 7Men's & boys' 25.7 10.2 35.9infants 2.3 0.8 3.1Wc,men's &: girls' 7. 2 3. 2 10. 4Household 6.3 - 6.3

Wool 6. 6 1. 3 7. 9Rl,'c & r bos 3. 8 0. A A 3

Infants 0.4 0.2 0.6Women's & girls: 2.4 0.6 3.0Hou sehold - - -

Artificial (Cellulosic) 7.4 2. 8 10.2Men's & boys' 3.2 0.4 3. 6

1nfant0 0. A 1 A

Women's & girlIs' 2.8 2.0 4. 8Iiou sehold 0. 4 - 0. 4

Synthetic (Polyester, nylon & acrylic) 18. 2 8.0 26. 2Men's & boys' 11.4 1.7 13.1Infants 0.7 0.8 1.5Women' I gi crils' Q 5 11 A

Hou sehold 0.2 - 0.2

- 104 -

9.53 In 1980 the distribution, by weiglht for apparel textiles and bedshpPeeing should be apprnoxmap1y as follows:

TotalTotal Fiber Cotton Wool Artificial Synthetic

Cotton Systems 64.6% 100% 64.3'/ - 10.7% 25.0%WJove n Fab hr icr

Wo1sted W'oolen 9.1% 100- 1') 5.5 '2.)

Woven Fabric

Knitted 26.3% 100% 54.0% 5.0% 10.0% 30.4%

Total 100.0% 55.8% 7.9% 10.1% 26.2%

The 1967 estimated distribution, by weight, for the three sectors of the tex-tilLe i4ndustry 'Ls approxLmUate'Ly .*5 J. cotLton systems woven texUti lV_ Ce, 7.5

woolen and worsted systems woven textiles and 12.2% knitted fabric (see Table9.24)N. l'ata is notl available on t1he distributior, by flbers bDy sector . LI --.4 -/O £ l~~a 0.a £ ~ L& S0 U.ULtU U, L C 1, O L U LIUW

ever, in 1966/1967, imports showed approximately 40,900 tons of artificial(cellulosic) and only 7,460 tons of syntl.etic. Vome of this fiber wouldI Leused by the products which had to be excluded from this analysis.

4. Estimates of Price and Weight Trends for Fabric in Iran

9.54 The projections of future consumer expenditure have been made forconstant prices. Iiowever, Lt[e construction oR tLle fabrics will probaDby

change, increasing the value per kilogram. For cotton fabrics, the presentaverage is 22.9 rials per kg and 7.5 meters per kg. With the use of morepolyesters, industrially produced cotton fabrics representing a larger portionof the total, heavier and wider cotton fabrics and better finishes, it is es-timated that cotton fabrics will shift to 34 rials per meter and 7.1 metersper kg. This estimate is supported by interviews and observations of pricetrends in Iran.

9.55 The value of worsted fabrics, with the present import duty on aportion of them, will probably not change.

9.56 Knitted products, averaging 338 rials per kg In 1967 are estimatedto average 390 rials per kg in 1980. This should occur through fancier con-structions, the use of more synthetics, better finishes and the use of text-urized yarns.

9.57 The results of these shifts are shown on the following Table 9.25with the 1967 average value of 237 rials per kg shifting to 327 rials per kgby 1980.

- 105 -

TABLE 9.24

SUIMMARY OF ]PRESENT METERS,J TC)NS AND VALUE WOVEN

COTTON & WVOCiL AND KNIT FABRICS CONSUTMPTION - IRAN

Cotton-Woven Worsted-Woven K.nit TotalMeters 1 Rials Meters (2) Rials Rials

Year (Million). Tons (Million) (Million) Tons (Million) I'ons (Million) Tons

1964 444 59, 5C0 9,177 7.I7 3,620 2,792 3,366 1, 10 66,486

1965 435 58, 300 8,629 9.9 4, :220 3,5 59 5,381 2,206 67, 901

1966 437 58, 500 10,051 11.2 5, 260 3,293 7,399 3, 044 71,159

1967 442 59,200 10,112 11.8 5,550 4,266 8,997 3,045 73,749

% tons - 1967 80.5% 7,,5% 12.2%o

go of rials - 1967 - 1'7,423 58.0% 24. 4% 17. 5%

NOTES: (1) 0.134 kg/linear meter.(2) 0.470 kg/linear meter.

- 106 -

5. Estimated Future Demand for Worsted, Cotton and Knitted Fabrics

9.58 If we assume that the projected shift in knit versus cotton wovensystems, takes place by 1980, the trends between 1964 and 1967 can be fittedto an eventual balance of fibers and production systems (see Table 9.26 andTable 9.27).

9.59 The demand for total tons of fiber (finishe(d products) for apparelfabrics and bed sheeting is estimated to increase from 73,749 tons in 1967to 178,000 tons in 1980. Demand for production from the woven cotton systemsis estimated to increase from 442 million meters and 59,200 tons in 1967 to817 million meters and 115,000 tons in 1980. The demand for knitting is es-timated to increase from 8,999 tons in 1967 to 46,800 tons in 1980.

Table 9.25: ESTIMATED AVERAGE RIALS/KG 1967-1980,CONSTAiNT PRICES, CONSTRUCTION OnildiGES

Cotton Wool Knit Total

I-~O

Total value (million rials) 10,112 4,266 3,045 17,423Total meters (million) 442 11.8Averageiprice (rials/meter) 22.9 362Average1meter/kg 7.5 2.12Total tons 59,200 5,550 8,999 73,749Average price (rials/kg) 172 769 338 237

1980 Constructions and Fibersat 1967 Prices

Average price (rials/meter) 34 362Meter/kg 7.1 2.12Average rials/kg 240 769 390Estimated distribution by 64.6% 9.1% 26.3% 100%weight

Average rials/kg 327

- 107 -

TABLE 9.26

ESTIMATED PAST CONSUMPTION AND FUTURE DEMANDCOTTON, WOOL AND KNIT f-ABRICS

l'uo4-197o Pras - I:,6-U190 V uLure

lTotal Average CottoDi - Wool KnitRials Rials Total Meters Meters

Year (Billion) per Kn Tons (Million) Tonn (Million') Tons Tons

i9t64 13. 2 i99 66, 48oo 444 5 , 5. 7 3,I 6 '3, 36u

I 9q 65 1 A A 2 99 f ]7qni 4 3 5 5 8,3 9 . 9 49 A2 2 0 5 O 3 8 1

1966 16.3 229 71,159 437 58,500 11. 2 5,260 7, 399

1.967 17.4 237 73,749 442 59,200 11.8 5,550 8, 9 99

- - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

1968 20.2 243 83,100 491 65,490 13.3 6,310 11,300

1969 21.7 249 88,100 515 68,880 14.3 6,780 12,500

1970 23.9 255 93, 700 534 72, 200 15.5 7, 300 14, 200

1971 25.5 262 97,300 546 73,840 16.3 7,680 15,780

1972 28. 1 269 104,300 577 78,000 17.7 8,350 1 7,950

i973 30.3 277 L5[U, 500 58ti 8U, 74U 18. 8 8, 86b I 9, Ijuu

!7A 33 A 92A8 11 7 ,500 6 89 PR 9,A 9n A 0 6AA) )9 gn0I lJ. S-'JJ 'J--- tJ-J-~ ~. T J 'I.

L 975 36.3 291 1.24,800 651 89.350 22. 0 10.350 25, 1 00

L976 40.3 298 133,000 669 93,060 24.1 11,340 28,600

:1977 43.3 305 142,000 703 97,690 25.9 12, 210 32, 100

'1978 47.7 312 153,000 742 103,280 28.2 13,320 36,400

1979 52.2 319 163,500 768 108,200 30.7 14,500 40,800

:1980 58.2 327 178,000 817 115,000 34.4 16,200 46,800

- 108 -

TABLE 9.2 7 ThousandsTABLE'9.2 7of Tons

--- 180

. TOIAL TONS OF WOVEN AND KNITTED APPAREL FABRICS(Includes Bed Sheeting) 160

PASTr CONSlJMPl ION AND PROJECTED DEMAND 160

140

TOTAL FABRI

120

A CTUA L DA IrA -~P?oJ)c~ r/OAS /

80

N ~COTTON FABRICS -VV

_ ~ _ _ _ _ ]60

lO NIT'TED FABRICS

_ 4151 0

WCOLEN and WORSTED FABRICSWVEN

1964 1966 196t3 1970 1972 1974 1976 1978 1980

- 109 -

9.60 The growth iin -Aemad - n toa Ios is 4siae -A I, -. 3 be- I

tween 1967 and 1970. The increase in demand from the cotton systems is es--i..MaLeu at 6 * .8pe yC arL, in ton, bte 1967 and t 970. InL meter6, t

demand increase from the cotton systems is estimated at 6.5% per year be-* .sn f7 A-- -I a 7n T_ _1_ c.nstrucll- .. 1..- .1 -- -.e.a- 4 - \1 n-A- -tWCCLL I 7t1 t:llt O .I V A". L VaLU 1.4Uda.L. LY ILLU tU-LC Li UL LUL1Z1 , LIC eU iat&u ±L,

crease from the cotton systems is estimated at 10.3% per year between 1967andJ 1970. (St-e TabLe 9 .28, 9 . andA 9.3)).

9.61 T2e present cotton Lextile industry is not meetinf the demand.The estimated demand for 491 million meters in 1968 (Table 9.26), wasmatched by an estimated production of 453 million meters.

9.62 Interviews aLnd data gathered from traders in Iran confirms tihatpresent (1970) demand for cotton woven textiles is not being met. The re-suit has been price increases.

9.63 The head of sales for Iran Factories assessed the present situa-tion as follows. At the present time, Iran's cotton textile industry ismeeting the demand of the market, inventories are non-existent and protitson sales at the largest factory in Iran are close to 10%, as opposed to 4%to 5% a year algo. He also provided the following data on output and unitprices for this factory.

TABLE 9. 28

ESTIMATED GROWTH IN TONS - AF'PAREL FABRICS & BED SHEETING

1964-1967 Actual, 1968-1980 1rojectecl at Constant Prices

Total. Cotton Wool & Worstled KnittedGrowlth Growth Growth Growth

Year Tons Rat:e/Year Tons -Rate/Year Tons Rate/Year Tons Rate/Year

1964 66, 486 59, 5 00 3, 620 3, 3l56

3. 517G 0% 15. 3TG 39. 0;5

1967 73, 7419 59, 200D 5, 550 8, 999

8. 3% 6. 8%,o 9. 3 %c 16. 3 G

1 9710 93, 700 72, 201D 7, 300 14, 200

5. 9 7G 4. 3 l 6. 1% 1. 2.0, G

1975 124, 800 89, 350) 10, 350 '5, 100

7. 2% 5. 2 % 9. 1 1 G 3. 3 %G

1980 178, 000 115, 000 16, 200 46, 800

TABLE 9.2 5

ESTIMJALrTED C;r1OWFH I-NT ET'EIS -

APPAREL FABRICS AND BED SHEETING

1964-1967 Actual, 1968 to 1970 Projected at Constant Prices

Cotton Fabric Wool & Worsted FabricM..1et e rs IG r o Avtf Meters G-rowth1

±VN~.0 A . IVLL -VIU'I 0 1- VV YLL

Year (Million) Rate/Year (Million) Rate/Year

1964 444 7.7

0% 15. 3%

1967 442 17.8

6. 5%7 9. 3%

1970 534 15 5

4. 0% 6. 10%

1975 E651 22. 0

4. 8% 9. 1%

I no, rC1 f7 n1 .oU C 1 1 'j4. 4

- 112 -

TABLE 9.30

ESTI HIA " i-~-,VrT' T T'I ~T AT TTTE' /f,-.A frlTCiTDW IYDT~Tl~ AIIAVV 7 TTI -TP- TT T-T,TEST1IMAT1ED_GRC;Ovr iI_______ _____ ____LU ____O5 RCE)A'AE,FABI 15DSE;7l

-LL -4 - .l -bS..)~X .J-4

1964-1967 Actuial, 1968-1980 Pro,jected at Constant Prices

(Billion of' Rials)

Total Cottlon Wool & Wor-sted -Knitted

Growth Growth Growth GTrowth

Yea r Rials Rate/Year Rials, Rate/Year Rials 'Rate/Year Rials Rate/ Year

1964 1.3.2 9. 2 22. 8 1. 2

9. 5% 3. 1% 15. 1 c 35, 2%

1967 17.4 10.1 4.3 3.0

1. 1 %1 0<. 3 9. 3%o 1 6. 4%o

1970 23. 9 13. 6c 5.6 4,7

8.7%,o 7. 20%o 6. 1% 13. 97o

1975; :36.3 19. 3 8.0 9, 0

9. 9%lo 7. 5 50 9 , .1 °io 15. 0%o

1980 5 8. 2 27. 6 12.4 18. 2

- 113 -

Outriut & Sales - Chit Sazi, Tehran

1969 1970(Actual) (Est.) % Incr.

Volume:

Meters (X 1000) 35,137 38,377 9%

Rials (X 1000) 758,767 894,200 18%

Average price/meter 21.5 23.3 8%

A greater price increase was noted at the Baresh factory in Isfahan wherethe factory manager stated that average selling prices had risen frnm rials29 to 35 per meter (21%) in the period from October 1969 to October 1970.It should be noted thaLt these price increasesaare partially due to produc-tion of higher quality fabrics. This movement toward better quality goodshas meart shortage in the lowest priced fabrics wihich are m.ost impoIrtant to

the low income groups in Iran.

9.64 Disc:ussions with a number of wholesalers and retailers has con-fim..,ed that tl:e inAustry 4s a rparently operating at or close to capacity - - ::

is unable to fill the demand for its products. The following table showsprLc inrase betweEt -laarc -- A n-4-t 1 017n -4-4 -- F mon"s. F5

ML a.S|[LL C4 tn.,, an O u UwCC:LW ci. Lii Oi Li.l .J'.. ULJL L * -, 'J a IAJt. .L O UV«iC V ::ii ILItJLit. LiCD

Dourct PriLce Lin JXR.Ls %s

Date & Location Type of Cloth Mar. 70 Oct. 70 Increase

10/5 Rudhen Chit 14 17 21%(small generca LStore)

10/ 5 11l Ch0 Ii t7 0 crmi 16 1

(retailer) Chit 80 cm 17 18 6%Chi1t 90c 18.c 20r.5 11k,OIL 70 criI EU...) /_v .J Il/,

101/6 J4ir...[ Kol Chit 00 C Okicm 17.5 19. 1%

(retailer) Metghal 90 cm 18 22 22%Chiardori (crepe) 46 51 t1%

u,/7 Sari Clit 15 18 0u%/(retailer)

10/14 Esfahan Kodari 14 20 43%100% viscose)

10/15 Esfahan Chit 18 20 11%(wholesaler) (viscose blend)

- 114 -

9.65 These increases are particularly important when reviewed against along history of stable prices in textiles. The Central Bank of Iran notedthat the price of chiintz, the equivalent of chit, rose in price by 7.5% from1959 to 1968 (less than 1% per year) and that the wholesale price index in-creased by less than 6% between 1963 and 1968 (Bank Markazi, September 1969).

9.66 The estimates for demand beyond 1967 have been assumed at constant1967 prices. The estimates of future consumer expenditures have been madeat constant 1969 prices. Therefore, general increases in all prices (notvalue) In the future, should not affect the projections for meters and tons(Table 9.26 to 9.29). The projections for increase in demand, based onvalue; are based on 1967 prices (Table 9.30).

9.67 Tf the textile industry in Iran increases its prices faster thanan inflation rate in total consumer expenditures, then the projections forfiltiurp fr1mpnd in tnns, mPt'rq and value. will be overstated. The Droiec-

tions will be overstated because the demand is a function of the amount ofmoney availablen

6. F.timated Demand for Fibers 1980 - AnDarel Products

9.68 The fibhr dit-ributinn wlhirb wnould result in 1980 i9 shown on the

following Table 9.31. Synthetic fibers are estimated at 46,500 tons or26.2% of the total fiber consumption for apnnrel prodiicts Cellulosir areestimated to represent only 18,200 tons or 10.2% of the total fiber.

- 115 -

m A'D T 'D 0 I

ESTIMATED FIBER CONSUMPTION FOR TEXT[LE APPAREL :PRODUCTS

(Tons)

IRAN - 1970

Artificial SyntheticTotal (Cellulosic) (Polyester,

caQec ons Cotl;on Wool -&Rayorr Nlo) ay-

Cotton-woven 59, 200 40,700 - 18, 000 500

Worsted-woven 5, 500 - 4, 950 500 100

Knitted 8,, 999 4,799 1, 500 900 1, 800

Total Tons 73,, 749 45, 499 6, 450 19, 400 2,400

7iof Totatl 100% 60. 50 8. 8% 26. 'L% 3. 30%o

IRAN - L9 80

Cotton-woven 115,000 74, 0OO 1 'L2, 300 28, 700

Worstecl-woven 16, 200 - :11, 700 900 3, 600

Knitted 46,, 800 25, 300 2, 300 5, 00( 14, 200

lTotal Torts 178, 000 99, 300 :14, 000 18, 200 46, 500

¾ of Total 100% 5;5. 77 7. 9% 10. 2(% 26. 2%To

Includes bed ,sheeting.

- 116 -

9.6U T'ie tons oU LUers E1n apparel La[rics andu eua sih-eetlng rep-resentperhaps only 60% of the total fiber consumption. The projections for demandfor synthetic fibers are less thIan the lndependent projectLons developed inVolume III on Inan-made fibers (Table 9.32). The conservative projectionsXromn hne 144F volume would yield approxiately 67 ,9100 tons of synthetic fiber

by 1980. The estimates for apparel fabric anid bed slheeting total 46,500 tonsor products or 697 of the MMF projections. In calculating tne tOIns of pro-ducts and comparing it to the tons of fibers as input, a waste factor shouldbe included. Tihis would bring the estimates or riber in rinisned textileproducts closer to the estimates for demand of fiber production.

Table 9.32: ESTIMATED TOTAL MAN-MADE FIBERCONSUMPTION AND DEMAiND

(in tons)(As per Volume III)

Growth RateConservative per Year Conservative

1966/67 1975 Beyond 1975 1980

Cellulosic 40,900 45,000 - 1% 42,700

Nylon 6,000 16,500 5% 21,100

Acrylic 860 7,500 10% 12,100

Polyester 600 14,000 20% 34,700

Total Tons 48,360 83,000 110 600

Total Synthetic 7,660 38,000 67,900

9.70 The 1980 projection of 42,700 tons of cellulosics in the MMFchanter does not aeree with the estimate of 18,200 tons for apparel fabrics.However, the assumption that cellulosics would remain constant or shrinkqlightlv iq vprifipd fnr annArpl nrndtirts. Before a comolete fiber balancecan be constructed, all fiber products would have to be analyzed, includingdomestic products of towels, blankets, carpets and rmiag draperies; up-holstery, plus industrial and semi-industrial products like tire cord, sacksand bags, etc. Reliable data was not available to doa rnmnp1te fihlbr ba-lance in Iran.

9.71 The tons presently (1967) used in Iran, for sectors analyzed areshow,n on Table 9.28, totalling 73,749 tons. The distribution by fibers hasbeen estimated (Table 9.31) from observations during thie plant visits and asabplying oac a tnise tpro+uc20. The dstribution by fibers, for 1967 is pro-bably only accurate to + 20%.

- 117 -

7. Summary of Techniques

9.72 The total expenditures for cotton, wool and knitted apparel fabric,including bed sheeting, has been estimated for the future, using total con-sumer expenditures. The 1967 expenditures of 17.4 billion rials are expectedto increase to 58.2 billion rials. This projection assumes that the projec-tions of total consumer expenditures are correct and that expenditures on ap-parel fabrics will increase from 4.8% of total consumer expenditures in 1967to 5.5% of total consumer expenditures in 19,80.

9.73 An average of 237 rials per kilo existed in 1967. The calculationassumes that the Ministry of Economy's annual industrial survey is correctfor meters and rials for cotton and worsted and corred for rials and tonsfor knitting. The total rials for 1964, 1965, 1966 and 1967 appear to becorrectly related to consumer expenditures.

9.74 Three estimates had to be made by the rnission, based on availabledata and observations. The estimates are that cotton fabric presently aver-ages 7.5 linear meters per kilo, wool and worsted fabric (plus sales yarn)presently averages 2.12 linear meters per kilo (of total yarn) and hosieryaverages 15.25 nair ner kilo.

9.75 For the years 1964 through 1967 a shift in demand natterns was ob-served with woolen and worsted fabrics holding their share of the market andknitted fabrics growing at a much faster rate than woven cotton svstems fa-brics. A shift in the value and weight of cotton system fabrics was also ob-served

9-76 To prediet thie lnng range chift, the tcnsumnpton patterns for USAapparel products in 1961 were asstumed to represent the consumption patternsfor products in Iran, somcetimo in the fiiti,r for t-he same level of consumer

expenditures per capita. The result showed a distribution of products be-twnee menat* u.men anA d .nte i4f-t 4 1 t or. tha the eani- pen distri 4 bui 4n T !ra.

Men represent 55% to 57% of the apparel consumption. The USA data confirmsthat the distr:ibution between men, nwmn anni infants, for a given household

size, should not change significantly for the expected level of expendituresper capita in Iran between 1968 and 1980.

9.77 The expected futrU, product distribution was coanvrted into kilos

of fibers, by applying 1967 USA fiber consumption to the products projectedfor Iran. The results were expressed as a percentage distribution by weIgh-:between fibers, knitted. and woven proclucts and products for men, women, in-fants and som.e hou1-hold fabrics (bed sheeting) produced on the cotton sys-tems. The assumption made is that, sometime in the future, the Iran con-su.mers willW demand L L t sarCc fibers and kit ve s woven A istri buti on as h11e

US consumer in 1967. Fiber, knit and woven consumption changed significant--ly in LIh uevelopeu cLLountries betLlween 1S955 and 1965J LLL Lfor t LU r UodLuc pLUJtZf--

ted for Iran. However, by 1967, tlhe patterns seem to be stabilizing.

9.78 The observe<l shlift from cotton woven to knitted fabric in IranfU. to 1967 was plotted and compared to the projected position sormle-

- 118 -

time in the future. The trends and the future distribution located a pe-

riod sometime around 1980 as the point at which the shift to the predicted

future would be completed. The projectioni is not precise and would lcoate

any year between 1978 and 1985. The year 1980 was chosen as consumer ex-

penditure estimates were available up to that date. The selection of 1980

(versus 1985) does not significantly affect the projection for 1970 through

1975. The overall projections of both past and future consumption should

be considered accurate in the range of plus or minus 15%.

- 119 -

ANN EX 1

IRAN

National Account Statistics

1 966 1 967

Billions of Rials (Market Prices)

1. GNP 503-.3 563. 5

2. National Income 432. 4 484. 4

3. Total private consumption 346. 5 377. 0expenditure s

roou andu beverages 182.5 L19. 5

PCE less food and beverages 164.0 181. 5

Clothing and shoes 36. 3 38. 9

Furniture furnishings and n. a. n. a.household equipment

4. lo of clothing and shoes is of:

a. GNP 7. 2% 6. 9/

b. National inconme 8. 4% 8. 0%

c. Private consumption 10. 5% 10. 3%

d. Private consumption less 22. 1% 21. 4%food

Source: UN Yearbook of Nationai Account Statistics - 1970.

- 120 -

ANNEX 2

JORDAN

1965 1966 1967* 1968*

Millions of Dinars (Market Prices)

1. GNP 180.4 185.7 205. 9 197.3

2. National irncome 157.2 157.6 181.6 170. 7

3. Total private consumrrpticn expenditures 138.0 149.5 158. 5 153.4

Food and beverage 72.4 73. 3 89. 0 73. 8

4. Total less food 65.6 76.2 69.5 79.6

Clothing and shoes 14.9 15.9 12.0 12. 3

Total furniture, furnishings and 5. 9 8. 3 5. 0 5. 4

househcld equipment

o of clothing and shoes if of:

a. GNP 8.3% 8.6%o 5. 8%7 6. 2

b. National income 9.5%o 10.1 7% 6. 6% 7. 2

c. Private consumption 10. 8%1 10. 6% 7. 6% 8. 0o

d. Private consumption less food 22.71 20. 9% 17. 3 % 15. 3%

% of furnishings and household equipmernt:

a. GNP 3. 3% 4.5% 2.4% 2. 7

b. National incomre 3. 8 5. 3% 2. 8% 3. 2%

c. Private consumption 4. 3% 5. 6% 3. 2% 3. 5%

d. Private consumption less Food 9. 0% 10. 9% 7. 2% 6. 8%

* Data from 1967 and 1968 not used in the analysis because of the effects of the war and othe3r

factors which might be involved.

Source: UN Yearbook of National Account Staltistics - 1970.

- 121 -

ANNI EX 3

GREECE

1965 1966 1967 1968Billions of Drachmas

1. GNP 176. 9 196. 1 211. 3 226. 6

2. National income 1415. 4 159. 3, 170. 1 179. 4

3. Total p,rivaLte consumption expenditures 129. 7 140. 3 148. 4 157. 8

Food and, beverage 53. 9 :58. 8 62. 0 64. ]L4. Toltal less foodi '74. 0 81.5 86. 4L 93. 7

Total clothing and shoes :L5. 8 17.9 19. 3 20. 8

Total furnitures, furnishings 5. 1 5. 3 5. 6 5. 8and householcd equiprrment

% of clothing and shoes; is of

a. C,NP 8. 9% 9.1%lc 9.1% 9.I2

b. National income I0 . 9% 11. 2% 11. 3% 11. 6%

c. I'otal private conp. exp. 1 2. 2% 13. 8% 13. 0% 13. 2%

d. T'otal less food 21. 4% 22. 0% 22. 3 % 22. 2

% of furnitures, furnishings and equipment

a. GNP 2. 9% 2. 7% 2. 7 2. 6%

b. National income 3. 5% 3. 3% 3. 3% 3. 2

c. T'otal private conp. e'xp. 3. 9% 3. 8% 3. 8 3. 7%

d. T'otal less food 6. 9u0% 6. 5%-jo 6. 5G/o 6. 2u

Source: UN Yearbook of National Account Statistics,,

- 122 --

ANNEX 4

IRAN URBAN POPULATION

Monthly Average Household Expendlitures by Income Groups

(Non-Food 1347 - Rials per MV[onth)

General BeloW 2,500 - 5,000 - 7, 500 - 10, 00() - 20, 000 -

Average 2, 500 4. 999 7,499 9,999 19, 999 & Above

1. No. of families in 3,719 529 1,196 722 414 605 253sample

2. No. of persons 18, 863 1,661 5,535' 4,029 2,400 3,661 1,557

3. Total non-foo,d 4, 243.6 580. 2 1, 343.4 2,584. 5 3,950.8 7, 184.4 23, 795. 3expenditures Rials Rials Rials Rials Rials Rials Rials

4. Total clothing & 594.3 41. 5 147. 8 356.4 610.4 1,186.9 3, 097, 1shoe expenditures

a. Shoes 146.4 13.1 53.0 102.1 168. 1 301, 1 587,, 5

b. Children's clothing 41., 0 4.4 1:2.2 22. 1 31. 8 72. 5 248,, 0

c. Women's clothing 153.0 12.6 41. 1 10:2.1 175.0 277. 0 787, 9

d. Men's clothing 232,,5 11.0 38.3 128.4 210.6 498.3 1,311,,5

e. Jewelry & misc. 21, 4 0.4 3.2 1.6 24. 9 38. 1 162,, 2

RNOTE:: Study by Bank Markazi, published in Farsi only.

- 123 -

ANNEX 5

IRAN RURAL POPUJLATION]

Monthly Average Hotusehold Expenditures by Income Groups

0(on--Food 1347 - Rials per Month)

General Below 2, 500 - 5, 000 - 7, 500 -- 10, 000 - 20, 000 -

Average 2, 500 4, 999 7,499 9, 999- 19, 999 & Above

1. No. of families in N.A.sarnple

2. No. of persons N.A.

3. Total non-food 1, 424.8 454.9 1,022.2 2, 001.4 3,196.3 6, 214. 0 21, 651. 2expenditures Rials Rials Rials; Rials Rials Rials Rials

4. Tot;al clothing &F 350.0 68.0 246.2 590.0 1, 028. 8 1, 869= I 3, 280. 4shoes ejxpenditures

a. Shoes 85.2 20.5 70.3 148.3 233. 7 372. 8 556. 7

b. Children's clothing 17.9 4.2 15.3 27.4 47. 9 86.1 121. 1

c. Women's clothing 98.5 22. 5 73.7 163. 7 258. 4 483. 5 965. 7

d. Men's clothing 142.5 20.7 86. 1 244.5 458.4 891. 1 1,420.5

e. Jewelry & misc. 5. (). 1 0. 8 6. 1 30. 2 35. 5 216. 5

NOTE: Study by Bank Markazi, published in Farsi only.

- 124 -

ANNEX 6

IRAN - POPULATION BY SEX, NUMBER OF HOUSEHIOL.DS-

AND BY SIZE OF SETTLEMENT, 1966

Eopulation - - _ - HouseholdsPersons /

Total - Male Female Number Household

25, 078.9 12,981.7 12,097.3 5,031 5.0

Cities with 10, 000 or more 5,667 2, 959 2, 708 1,149 4. 9

Tehran 2, 720 1, 426 1,294 567 4. 8

C'itie s with 2,5-100, 000 2, 149 1, 118 1, 031 422 5. 1

;5- 25, 000 1, ,898 977 922 375 5. 1

Less than 5,000 15, 364 7,928 7,437 3,085 5. 0

- -.-- --------.- -- -- -.-- -------- -- -- -----------------

Includes a small number of collective households.

Source: 1966 Census.

ANNEX 7

I]RAN - POPULATION INFORMATION FROM FAMiLY BUDGET SUIRVEYS

(Bank MVIarkazi)

1966 1965Average Ave rage

Household Population Households Household Population- (Nos) (000's) No.- (N os) (000's)

Tehran 5.06 2, 980 588. 9 4. 73 2,,786

Nine large cities 5. 31 2, 530 476. 5 5. 27 2,,511

Other cities 5.19 4, 298 828. 1 5. 28 4,373

Urban areas 5.19 15, 977 3, 078.4 5.01 15,,423

Total Population 25, 785 25, 093

Source: Bank Markazi - National Income of Iran, 1962-67, page 120, Table 1.

ANN EX 8

i RA AN

KN1T GOODS MANlJ ['ACTI ME i.RS)

(Firms Employing 40 Plersons or More)

No. of Annual OutputEmployees lons Garments

1. Keshbafi Jourabehi 43 94 90, 000 pair of socks

2. Sherkat Sahami 213 700 12,000,000 hosieryKarkanehjour Sankur

3. Sherkat Sahami 258 270(E) 584, 700 pullovers, jackets,blouses for women,men & children, etc.

4. Keshbafi Fakhr 41 76 30, 000 dozen underwearDouzdouzani

5. Keshbafi Anita 55 141

6. Keshbafi Silko 45 118

7. Keshbafi Mireij 83 340

. KeCs'bafi Khase-ian A3 20Q 9, 000 dozen underwear

9. Keshbafi Zarinebaf 85 320 --

10. Tricot Violett 60 70(E) 89, 700 pullovers, jackets,hlouses for wompen,

men & children, etc.

11. Keshbafi Rezai 41 25(E) 36,000 dozen underwear38(E) 15,600 blouses

12. Keshbafi Behnam 62 85 120,000 dozen underwear

13. Keshbafi Nagm 59 45 72,000 dozen underwearfor women, men

1,088 1 2,5 r,& children

- 1.27 -

Annex 8 - Continued

No. of Annual OutputCompany Name Employees Tons Garments

14. Tricot Bikii 47 40 pullover, Jacket.s,

blouses for women,men & children

15. Sherkat Sahami 70 90(E') underwear, shirtsTourab-

\ *, A. A~ A,

16. Keshbafi Shams 96 6u 0Du, 0U0 underwear

17. Keshbafi Tehrani 278 150, 000 underwear

18. Keshbafi Ghazi 42 23 90,000 underwear

19. Keshbafi Sai:a liU ii7 187,500 pullovers, jackel:s, etc.

20. Sherkat Sahami 112 130(E) 449,400 pullovers, jackel;s,Towlidi Budva blouses for women,Iran men & children

21. France Tricot 115 279 47,700 pullovers, jacket;s,blouses

22. Denis Tricot 56 37 70,000 pullovers, jackets,hl cblo se

Total 14-22 648 1,062

Total 1-13 1,088 2,550

Grand Total 1,736 3; 61 2

- - - - - -L- -y- - - ---[-U - -.

(E: sti,lmated ly the nIssion01U1.

- 128 -

X. THE APPAREL INDUSTRY

A. Apparel Production in Iran

1. Summary

10.1 At the present time a high percentage of all apparel in Iran ismade in the home or in small shops employing five persons or less, oftenmembers of the same family. In most cases, the consumer buys fabric, notapparel, then sews it at home or takes it to a tailor shop.

10.2 A review of Iran's apparel factories showed only 15 in Iran employ-ing 25 persons or more. These 15 employed a total of 662 persons or an aver-age of 44 employees per factory. It is important to recognize that this lackof industrialization in apparel production is not characteristic of a coun-try at Iran's stage of development and that many countries with smaller popu-lations and lower per capita incomes have mass production apparel manufactur-ing facilities employing thousands of workers. We will cite specific examplesfurther on in this report.

2. The Economics of Industrialization

10.3 The question of whether Iran should foster the development of amodern apparel industry goes back to the basic question of whether any con-sumer product should be produced in the most efficient way possible. withthe smallest input of labor and materials and at the lowest possible cost.Factors favoring the replacement of small tailor shops with large apparelfactories are the following:

a. Labor inputs per unit are lower.

b. Material inputs per unit are lower.

c. Quality can be standardized and improved.

Factors against this cliange are:

d. Overhead costs for buildings, equipment andsucervision are hliher

e. If the output remains constant, fewer personswill be employed by the industry.

10.4 Obviously the answer to the question of industrialization dependson the degree of these five factors. In the following sectonswewill re-view our observations from visits to three apparel factories and we will at-temp-tp to estalDlish thLe magnLitude ofi the factors which bear on this problem.

- 129 -

3. A Review of ExistLng Apparel Factories in Iran

10.5 In Appendices B, C and D we have set forth our observations result-ing from inspection trips to three of the largest and most successful ap-parel factories in Iran. As we were not shown any company records on produc-tion or costs, our comnents and estimates are based solely upon in-plantobservations and statements by the factory managers. Because of this, ourdata on productivity and costs may be lacking in accuracy. We believe thatour production estimates are probably on the high side. Observations on thecondition of equipment and the organization of the factories are reliable.Our comments ont these three factories follow.

10.6 Panama Shirts Is the largest producer of men's and boys' shirirsand has the best known apparel brand name in Iran. Their quality is goodand their shirts command high prices in the market. The operation is small,however, employing only 40 persons as compared to a minimum of 100-200 em-ployees for an economically viable operation of this type in a developedcountry. Of the three factories visited, this factory was the best equippedand managed. Working conditions were good. hours were relatively low (44per week) and pay rates were the highest ($3.30 per day average).

10.7 Productivity was also the highest of any of the factories visited,We estimate the unit labor content as follows:

Daily labor input 296 hours(37 persons x 8 hours)

Daily production 450 units(Averag-e lon,g sleeve -short sleeve)

Labor input per unit .66 hours or40 mintiesi

(Average 40 minutes. long' sleeve44 minutes, short sleeve 36 minutes).

As noted in the subsequent table, we would estimate this factory as about 40nercent efficient in utflization of labor and equipment as compared- to atypical rationalized European shirt factory.

10.8 The goods from this factory are primarily sold in four company ownedstores selling Panama shirts onlvy three in Tehran and one in Tahri,. Salesare also made through an exclusive agent in the Bazaar who sells to approxi-rmatelv 200 customers in 100 different cities The cagnt sella wlhit chi,t-sprimarily (80 percent) but the stores carry a wide variety of stripes andcolors. Tt is our understanding that approxnimately 40 percent of all shirtsare sold by the agent and 60 percent are sold through company stores.

- 130 -

10.9 Prices per unit, compared with typical European retail prices, areshown below:

Minimum Price Maximum Price

Panama Shirts Rls 350 $4.62 Rls 1,500 $19.80U.K. or Germany --- $4.20 --- $ 9.60

These are not exact comparisons, since the low priced shirt was producedfrom Iranian fabric of good appearance and durability but lacking the handor finish which would be found in a typical European broadcloth.

10.10 Thle relatively hligh price is a strong barrier to increased sales.This manufacturer has traditionally used a hliglh percentage of imported clothand he states that he can sell all he can make of fine quality imported cloth.Thus, he has confined himself to the luxury market in Iran and there he mustcompete with some skilled custom shirt makers.

10.11 He notes that the department stores will not accept his shirt withthe Panama label and he states that he has refused to sell on this basis toForoushgahe Ferdowsi for approximately four years. Again, this may be aproblem of pricing, with the department stores requesting a price which willyield a good profit, and Panama wanting a price close to the retail price inhis stores.

10.12 When asked if he believed he could expand, he stated that he wouldexpand his plant only if assured of an export contract. He is currently ne-gotiating with Russia or one of the Soviet bloc countries for a contract ofthis type.

10.13 General Modes is a store selling all types of apparel, whiclh ishoused in a large four story building oni one of Tehran's old, narrow streets.They have a clothing factory in another part of Tehran which makes men's andboys' suits and nants, as well as some Ladies coats, with all productionsold in the General Modes store. This factory is reputedly the largest inTran, e.nmployIng approximately 140 nersons (One source states total emnlov-ees are 200, but we believe that this includes the store employees.) Wewoniled exnopect an ono-e%nmicay1v viahlp fQactorv wit-h th-is tpvn of nroduction to

employ a minimum of 250 persons in a developed country.

10.14 Equipment in this factory was generally substandard. Operatingspeeds were low and only afew special machines of the most basic types wereemployed. We estimate that this factory is 30 percent efficient compared toa typical rationalized European factory, and this estim.ate would have beenlower were it not for the fact that a suitcoat employs much hand sewing andin this area the Iranilans are close tIo the productivity found in -a moderr.plant. Working conditions were generally not good, hours were long (58 hoursper weekJ and the average wage of $2.00 per !0 'hour ay was the l3west en=countered.

- 131 -

10.15 Prices ranged from rials 2,300 to 4,600 ($31-$61) for a man's suil:and from rials 280 to 11,250 ($3.70-$16) for men's and boy's trousers. Thequality of the trousers was relatively good, but the suit was heavy andboardy. We attribute t:his to the quality of the fabric and the quality ofthe various pieces of canvas and hair cloth inter-linings which give shapeand resiliency to the coat front. In addition, the basic sewing construc-tion contributed to the inadequate quality. Along with these quality prob-leins, the price structure is not satisfactory for thie Iranian consumer mar-ket. Their prices are not low enough to interest the poorer, middle classman and their qutality is not good enough to sell to the more prosperous gov--ernment workers or businessmen. It should be noted that management is awareof their quality problems and is seeking assistance from Europe in the de-sign and quality area.

10.16 Foroushgahe Bozorge Iran is the newest of two large department.stores in Iran. Their main store and suburban branch carry a wide range ofclothing in attractive,, modern surroundings. Like many store owners, theirapparent goal is the production of a high percentage of the items which selLin their stores. Present production includes men's and bovs' suits andpants, women's suits, dresses and coats, and a large line of children's andinfants' wear.

10.17 Their factory is located in a multi-story building with approxi-mately six small shops, averaging 10 to 15 stitchers and a cutter, in asmany separate rooms. The company is involved in many different endeavors(TV sets, tile rnanufact:uring, etc.) and in this factory building they alsohouse a company whlich imnorts and sells home and industrial qewinp machinesfrom East Germany.

10.18 These machines are also used in their shops and they are apparent-ly slnw and Qz,-standa1rd SnmP Qnecia-l mnc-hI nes are usQeir also o%f Eas t German

origin. In general, productivity here was the lowest of the three factoriesah r - rup WA sa ttri h lt t-h-i tA a large nuamhbo r o%f diffeAret- arme nts t4inn

made in small quantities and to the fact that this is a new factory, withsnme nf thep nroduciioinn having heen recently transferred fronm .anther 1 oca-

tion.

10.19 We saw finished suits and pants in the department store itself andthe nqiulityv f these w'!S fair to good. Iwowever, it is not known whetherthese were madte in the company's own factory or in separate tailor shopswhirh the company also uses.

10.20 In a meeting with the managing director of t!is commpany we learnedthat they intend to develop their own suit production facilities at an earlydate. They are aware of the profit pntentia! in manufacturing clothing andthey believe that they need their own modern factory in order to improvequality and build their- business in this area. This seems wise to us astheir store facilities indicate selling capabilities which, given a goodprod.JuctA* X , AouLtL1A I * g rte a gre.atly incL.reGased C sal.ro Vol1ume.A v

4. The Potential for Reduced Labor Inputs

10.21 We have briefly referred to low productivity in dliscussing threedifferent factories in Iran. In order to better demonstrate the magnitudeof the labor losses resulting from small scale operations, insufficientutilization of special equipment, and untrained management, we will comparelabor requirements in minutes for three basic garments, using estimated typ-ical production costs in four situations: Europe, North America, an Iranianfactory today, and a small Iranian tailor shop. While we were not able toobserve in detail the operations of small shops in Iran, we do hiave a goodknowledge of custom tailoring in Europe and the United States. This infor-mation and a detailed knowledge of the various operations in a garment whichare benefited by scale, have been used in making projections which we be-lieve are sufficiently accurate to have significance.

10.22 Thlis would indicate that the present shop-made apparel is requiring5 to 7 times as much labor as it would with modern equipment and efficientmethods.

Table 10.1: ESTIMATED LA13OR IIPUTS FOR TYPICAL APPAREL ITEMS(In Direct Labor Minutes)

USA European Present TailorFactory Factory Iranian Shop

Product Rationalized Rationalized Factory Iran

Short Sleeve Shirt

Min per unit 10.5 14 36 65Index (1l00) (1.33) (3-40) (6-20)

T.^nnc RlptUp Rhi rt

Min per unit- 13 18 44 79Index (1.00) (1.33) (3.25) (5.85)

Men's Trouser

Min per unit 22.0 30 116 162T ndex (1I. n) (1 .36) f(5.30 (M7.35)N

M'LsZI Su.Lt (orL SporLt/ Coa't.

"I-: . 00. ru 1 ')A 20AMiiin pe- UnILt 8.U 0 U J120 J0 5u

Index (1.00) (1.36) (4.30) (6.00)

Average - Index (1.00) (1.35) (4.10) (6.40)

- 133 -

5. The Potential for Reduced Material Inputs

10.23 Addit:ional opportunities for cost reduction exist in the carefulutilization of cloth, knd since the value of material substantially exceedsthe value of labor in apparel, this is an important area for savings. Inthe United States today, a typical apparel manufacturer's costs will includematerial at 40 percent to 50 percent and direct labor at 15 percent to 20percent of the manufacturer's selling price. This gives us a ratio for ma-terial versus labor costs of approximately 3 to 1. In Iran, material costsare approximately equal to those in the United States and per hour laborcosts are about: one-eighth. This would indicate a composite ratio in Iranof 24 to 1 for the relative cost of material versus labor. In actual fact,however. this must be adiusted downward due to the inefficient use of laborin Iran and we suggest that a ratio of 10 to 1 is probably in order. Usingthis ratio, a saving of 2 percent in tnit mat:erial costs is equivalent to asaving of 20 percent in unit labor costs.

10.24 In order to estimate the magnitude of material losses in Iran, wehave taken from established data the material requirements in meters perunit under the following four manufacturing conditions:

a. A United. States factory which has a continuingsystem for material utilization controls- andcuts in large lots, using long, multi-size laysof cloth-

b. A United States faetorv onperating uinder thesame conditions, but lacking a formalized ma-teria1 iiti iJzatinn program.

c. A European factorv mitthniut a mnte,-rial utiiiliz7tion

program, and using short lays.

d. A custom tailor cutting single units only.

10.25 While the effects of many of the factors described above are ob-vionuis the impnrtancrne of long lay (20 to '10 meters-a) nopposed tos shor,t lays

(4 to 5 meters) is not so evident. Taking a man's trousers as an example,this garrment is cut as four large parts (front and back 1an-s plus1 a vari-ty of smaller parts, fly, waistband, etc. In making out the required partsfor a csngle garment on one length of cloth ma aea of the clot-h will notfbe utilized. Increasing the number of garments to four in a single markern.eans that various parts can be .anipulated and interlocked in a way whichwill substantially reduce the unused areas of cloth, and thus increase ma-teri-al utilization. The eff4ciency ofr material uti1lization is further in=

creased as markers expand to 30 to 40 yards, and these lengths are commonlyued in mLanufacturing in the TUCA toay-

- 134 -

10.26 There are compounding problems which exist in the cutting of singleunits. The consumer wlho purchases the cloth is often uncertain as to the ex-act niumber of meters required for a given item of apparel, particularly ifa pattern is involved or if he wants a style which is new. If he buys toolittle cloth, it may be impossible to make a satisfactory garment, and hecompensates for this by using a generous safety factor. Once this is done,any excess cloth is a remnant of marginal value. In contrast to this, themass producer makes the same item repeatedly, learns to minimize waste clothand remnants, knowing that any reduction in material usage contributes tohis profits.

10.27 The following Table 10.2 sets forth typical requirements for fourdifferent garments under the four production systems.

10.28 Thus, our estimated average excess cost for material consumption is14 percent over optimum costs.

Table 10.2: MATERIAL REQUIREMENTS FOR BASIC GARMENTS(in Meters per Unit)

US Factory US Factory European CustomOptimum Average Factory TailorEffic. Effic. Average Effic. Single

Item Long Lays Long Lays Short Lays Unit

Suit 2.62 2.70 2.81 2.92(fabric 150 cm wide)

Trouser 1.39 1.43 1.50 1.61(110 cm wide)

Shirt 1.63 1.67 1.76 1.91(110 cm wide)

Average 1.88 1.93 2.02 2.15

Index 1.00 1.03 1.07 1.14

6. A Comparison of Apparel Industries: Iran and Other Countries

10.29 As noted earlier, Iran's ;nppa-l.e industry is small, not only ascompared with developed countries, but al0n in rel2ti4n to the stntp nf thisin(lustry in other lesser developed cotntries. In order to illustrate therelatively low degree of indus trialization which has tlaken place to date,and to estimate the potential for future development which exists, we willcompare Iran and Algera-4, a country which4 is c 4 ml tr to Ira in r1 -

nspectas.e-a respects.

- 135 -

10.30 Both countries are at a relatively early stage in their develop-Tment, both are primarily Moslem, and traditionai non-Western ciothing isstill heavily used in each. Population, gross national product and per cap-ita income for 1969 are shown below:

Population Per Capita Population -(Millions) Income Income Index

Algeria 13 $225 1.0Iran 28 $314 3.0

This shows that Iran has both a larger population and a higher per capita in-come and that the combined effect of both of these factors should yield aconsumer market 3.0 times as large in Iran as in Algeria.

10.31 As compared to this estimate, the actual size of the apparel in-dustry in each country is as follows:

Factories with Factories with 50 Total Factories Em-20-49 Employees Employees or More ploying 20 or MoreNo. of No. of No. of No. of No. of No. of

Country Fact. Employees Fact. Employees Fact. Employees Aver-Total age

Algeria 94 2,721 51 5,370 145 8,091 56Iran 12 340 3 322 15 645 44

Concerning these figures, it should be noted that no knitting establishmentsare included in the figures for either country. Apparel industry averagehourly earnings are approximately $.40 per hour in Algeria and $.30 per hourLn Iran. Using Algeria as a base, then. where we would expect an industry of25,000 employees, we have instead less than 1,000 workers, receiving hourly

wages approximately half of those in the more developed Algerian industry.

7. A Comparison of Iran's Apparel and Sthoe Industries

10.32 In contrast to its apparel industry, Iran has a healthy and growingshoe industry. Prior to 1955, virtually all shoes were produced in smallshops. At about that time, however, several shoe factories were founded andthey have grown rapidly since that date.

10.33 Since statistics on this industry are difficult to interpret (e.g.ehe Ministry of Economy reports employment and wages for a combined classi-fication of Footwear, Wearing Apparel and Made-up Textile Goods), we willillustrate the state of development in the industry by describing the lare-est shoe company in Iran, Melli Shoe Company.

- 136 -

10.34 In 1955, the Melli Shoe Company started producing for sale on awholesale basis only. Sales in 1970 are estimated to be approximately 30times those of 1955, with most sales made through the company's own stores.In 1957, the company saw the need for developing a chain of retail storesand opened 15 shops in Tehran. This retail chain has since grown to 250stores throughout Iran, including 80 in Tehran alone.

10.35 Today Melli and the other major shoe companies provide an esti-mated 20 percent to 30 percent of the leather shoes sold in Iran and wellover 50 percent of the inexpensive footwear made of molded plastics and rub-ber, and canvas. Projections indicate that the consumption of leather foot-wear will increase from 17 million pairs in 1967 to 36 million in 1976, withmachine made shoes rising from approximately 20 percent of production in1967 to 50 percent in 1976.1/

10.36 The physical facilities of the Melli Shoe Company are impressiveand working conclitions are the best observed in visits to various textileand apparel factories. Wages also are well above average! with a startingrate of rials 80 per day and progression to rials 150 to 250 per day depend-ing on skill and output.

10.37 The product appears to be of good quality and prices are approxi-mately half of those found in a typical store in the United States (rangingfrom $3.00 to $7.00 ner Dair) for leather shoes. The outDut of inexDensiveplastic and canvas footwear is large and prices are low (rials 35 to 70,$.47 to $.93 per unit) and since this category accounts for 60 percent ofall footwear sold in Iran, this production provides well for the needs of thelarge. low inrcome nonulation in Iran-

10 = R A fiirthpr ind4cratinn of the health of Tran' 6 shoe industrv is seenin the export statistics for recent years.

1966 1967 1968 1969

Exports of Shoes 736,446 2,366,471 3,246,335 3,312,506(Pai4 as

These steadily r4S4 ng exports developed from approxi4 mately 10,000 -airs in1961 (statistics show exports by weiglt, 3 tons in 1961) and they indicatethat the Jndustry 4s effic ent and thus. is serving Iran by producIng an im-portant consumer product at a reasonable cost. In addition, the industry's

e-^ors lR< au i-r,,orant contribvutintnteconr;seon.;CAP1/ L " M IricICan KY oe Industry an L:S t,.tJtAtLs an 0

1/ "The Iran Shoe Iindustry rind the Components" an ILO-SSI-IEI Report.

- 137 -

10.39 While accurate statistics are lacking on the labor force emplovedin Iran's shoe industry today, we can make some reasonable assumptions. Theindustry employed 5-369 in 25 shops of 10 Dersons or more in 1968. TodayMelli alone employs 2,100 persons and we would estimate that over 5,000 areemnloyvd in shops emplonvin 25 nprsnnci or more.

10 40 This again gives usiabasis for pronecting tlie potential employmentfor mass produced apparel in Iran. Typically, the ratio of factory workersemployed in producing apparel versus shoes is 4 to 1. This Twould give sc anexpected industrial apparel employment at this stage of Iran's development ofmnnr-vvi m-talu ?, 9f WAf) .^rrA

8. The Potentia41 for TEIn's A-parel MarVkt-

10. 4 sGiven the potiential reduction in material a1d l i -h i

still a question of whether a more efficient apparel industry will providea A X 4 employmen 4 I 1 Q . .t 4 __- ._ . A.. _AtJ -t f 4 4A C A. 14 A -L Lymet., -. l.V _ -- OC -- 6 - * , V-, -- *-VII - I

viously a garment which was manufactured more efficiently in a factory wouldnot be able to com.pete In actuaL f.Eat, few wom..en hLtave enoughLn iLU.dLe tiLmIe tLomake the clothes for their families. In the poorer familes women often spend

their tir.e an agrilcult-ura1l tasks . M-Mnwo,eint; citie seek --- ,,po,lUtIC. L UA.ILC .Jfl .L.U± .. L OA LI IC.LLLy WURI=LCI L[L %LL L L.. CZ OUC CiILp.LUYL)y Z&~LL

in factories and only in the reasonably well to do families is ample timeavailable for soewing. Further, studies ln several countries with low percapita incomes have shown that clothing expenditures are approximately 10percent to I percent of totaL expenditures over the ranlg[e of01 $J3V Lo $/70per capita. Thus, we can expect that as expenditures rise in Iran, themaLrket for miade-up apparel will increase, anrd tills is particularly true ifquality is improved and unit prices are lowered.

10.42 Aside from the domestic market, Iran hias all the necessary ingre-dients for developing an export trade in apparel. Wages are low and teecountry is steadily improving the quality of its textiles. As for the indus-trial aptitudes of Labor, we have observed workers in the Melli Shoe Factorywho were operating sewing machines at a pace and skill level which comparesfavorably with any we ha-ve seen in North AUericaa Europe or the Far East.Thus, we are confident that a modern factory with high speed machines couldproduce garments with Jabor Inputs as low as any in the worid today. Underexisting trade arrangemtents with the Soviet 13loc, it is likely that the pres-ent Iranian textiles could be used for garments which would be readily salablein this market. Given textiles which are cornpetitive in quality and price jinthe world market, the apparel would certainly meet worid competition.

9. Marketing Probiems in Developing an Apparel Industry

10.43 Although there are many factors favoring industrialization ot ap-parel production, an area which could seriously limit the successful develop-ment of profitable apparel companies is marketing. At the present time, moEtmanufacturing units are built aroundl the selling ability of a single store ora very small group of stores. A store owner may have his own tailor shop, or

- 138 -

lie may itave a Cap LI Ve *s TLus L1IC e typ il rt L'er s k to LU laidNL4 a p rLof L

from both manufacturing and selling. While it is possible that the introduc-tion of a superior product at a lower cost would automatically open the doorin retail shops with existing sources of supply, this cannot be taken as anassumption.

10.44 In apparel marketing we must recognize that items which are re-garded as basic apparel in developed countries are in fact luxuries in Iran.This would include $4 snirts and $40 suits. Tne influence of the expandingmiddle class in Iran has created a good market for these items and the ex-isting apparel factories seem directed towards serving tnis market. We areconvinced that there is a market for less expensive apparel of good styleand quality, say a man's sniirt at $1.75 and a pant at $3.0u. Tnis is tnereal mass production apparel market, and marketing at these price levelsmust be done in volume which will probably be difficult to achieve withoutcareful study and planning.

10.45 One possible solution to this problem would be for a company toset up a chain of retail stores, just as the large shoe companies have done.The difficulty here is that rapidly increasing real estate values in urbancenters may well have made this approach too expensive to be economicallysound.

10.46 Alternatively, some apparel is now sold in the Tehran bazaar, andthis market may have the capacity to distribute larger quantities of appareleffectively. HIowever, we do not believe this possibility should be acceptedas a solution to the problem without more detailed study.

10.47 We would further suggest that the first moves into mass producedapparel should be made in basic garments staying away from high fashionitems. This would exclude women's dresses and probably points toward lowpriced men's shirts and pants. Suits are difficult in sizing and stylingand generally require alterations by the store selling the garment. Forthis reason, we believe that the existing department stores are probablybest situated to set up their own suit factories.

10.48 In summary, the problems of setting up a modern, efficient apparelfactorv are probably less complex than those of marketing its output. Anycompany embarking in this industry should be urged to carefully detail theirmarketing plan as one of the first steps in their program.

B. Potential Demand for Apparel Products

10.49 In projecting total textile requirements for apparel, the averageconsumer expenditures were analyzed. In 1968 (1347) the urban householdsurvey indicated that an urban family averages 426.5 rials per month onmen's, women's and children's clothing or 1,020 rials per capita per yearfor a household size of 5.0. Based on the forecasted growth for total con-sumer expenditures, increasing at approximately 8.0 percent per year from

- 139 -

1970 to 1975, and a tendency to spend a slightly higher portion of thesetotal expenditures on clothing, urban donsumer expenditures on clothiingshould average approximately 1,635 rials per capita per year by 1974. Basedon USA consumption pat:terns for the same level of annual per capita expend--itures, a dewmnd for apparel products was estimated along with the distribu-tion of fibers. The estimates are shown on the following table in demandper 1,000 urban consumers. The estimates should be considered only approx-imate and are used in lieu of detailed studies of Iran consumers.

10.50 The products with the greatest estimated demand are men's andboys' woven shirts and trousers at approximately 900 per year each forevery 1,000 urban consumers.

10.51 Iran cotton is suitable for the production of drill and twillfabrics of export quality which could be used for work pants and work shirts.The cotton is not suitable for producing shirtings of export quality.

10.52 Work pants and shirts are stable products and do not have a stylefactor that accompanies most clothing products. They are ideally suited forvery efficient mass production and for export. If they were produced eco-nomically and with quality construction, they should be well received inboth the local Iranian market and in export markets.

Table 10.3

ESTIMATED DEMAND IRAN NON-TRADITIONAL APPAREL ]PRODUCTS DEMANDP]ER 1, 000 URBAN CONSUMERS WI'H ANNUAL APiPAREL CONSUMPTION OF

$21.60 PER CAPITA (1, 635 RIALS PER CAPITA) AT RETAIL PRIC'ES

APPROXIMATE]LY 1974 (1353)

Cellu-TotaL1 Cotton Wool los)ic Synth.

Units Kg - Kg -

Men & Boys' (,3 & up)

Overcoat 28.4 34.0 11.9 10.3 2. 8 9.0

Jacket 53.5 43.3 19.7 6.7 3.6 13.3

Tailored sportcoat 89.8 58. 4 9. 2 26. 1 4. 5 18.6

'iweater 84. 8 21.2 0.8 13.1 0. 3 7.0

llaincoat 21.6 17.4 5.1 - 3. 6 8.7

Tailored suit 58.2 60.0 3.7 33.4 8. 8 14.1

Trousers 344. 0 188.8 62. 8 16.4 31.1 70.5

Work pant 171.0 131.0 118.0 - 2.4 18.2

B1lue jeans 312.0 269.0 215.0 - 4. 3 33.1

Short 76.6 23.0 7.6 2.1 3.8 9.5

Work shirt 171.0 114.0 75.8 1.5, 2.9 16.2

Sport shirt 339.0 94.7 48.5 2.0C 15.3 28.9

Dress shirt 302. 0 108. 4 60. 0 - 0. 4 48. 0

Knit shirt 152.0 64.2 50.0 0.3 i. 3 12.6

Pajama 89.4 38.4 35. 0 - 0. 2 3.2

Socks (dozen pairs) 147.5 35.3 18. 8 1.0 )0. 4 15.1

Undeerwear (shirts or pants) 1,530.0 214.1 194.5 1.7 6.6 11.3

- 141

T7able 1L0.3 - continued

Cellu-Total Cotton iool losic Synth.

Un its B" -Kg Kg Kg - Kg

Infanits (0 - 2) - 175.4 E0. 7 15.6 37. 1 42. 0

Womlen & Girls (Age 3 Et Up)

Overcoat 61.0 73.4 11.6 32.7 5.7 23.5

RELincoat 15. 9 12. 7 3. 8 - 2. 5 6.4

Jacket 27.6 18.0 3.6 9.9 1.6 2. 9

Sweater 177. 0 43. 9 1. 8 12. 1 0. 2 29. 8

Suit 18.2 16.4 2.2 4.2 6.0 4.0

House dre!ss 212.0 112.2 7'0. 2 - 2.4 39. 6

Street dress 151.0 78.3 20.5 5.4 38. 2 14. 2

Skirt 104. 2 36.4 9.8 7.6 3.0 16.0

Blouse 206. 0 39. 2 17. 8 0.3 9. 1 12.1

Slacks 72.0 39. 7 15.1 4.4 6.9 13. 3

Slip 267.0 40.0 10.8 - 12.4 16. 8

Smock 143.5 57. 6 .36. 0 - 1.2 22.4

Panties 948.0 94.7 23.0 - 24. 9 46. 8

Under shirt 39.0 5.5 5.0 - 0. 2 0. 3

Nightvwear 141.0 57. 3 34. 8 1. 1 8.4 13.0

Socks (dozen pairs) 65. 7 16. 0 8. 5 C0. 5 0. 2 6. 8

St;,cki:ngs .L, 2U V .o. 1

Bras 152.0 15.2 3.7 - 4. 0 7.5

- 14 2 -.

C . "' tent ial LT:;ft ; u.ttr t for 1oir-il Pant.s and Vork ;Shlrt.s

I . l'ab ri el: tF.

1().53 In order to p:~ od i):e oxIp n, ti, jV I rod tc tic for botLh1 la3 m.1r1te2:;and export, Stc'Ir' rYl I C.O I I, - tot-n dr-ri ls :mn tw fl h- s ho,-i' d b-

1Q. S/ At: pr a r I r-in I n.a tv I nr teAre ts.v.tl, andA/ nac::i,n,I,m,cy p., -r

costs of $0.55 per pound, a qtiality twi.11 for a work .Ihlrt co-l47d be p ro(tic(-idat 2r 941 r fal Q ratr we.-er nri 3'I/37 L:r.i!I. !.f io'y42tPr I IIU.ti ' .

the mills i[rprove6 thet r preselnt productivity , .he CCISt could hel reduced to_ -(I rials p.er meter. To be rh.nse _v.t-ve, t.r 4 ilI In ssuen a r.-e o f ) I1

rials per meter. This uouid bt comrpeti.tive w7ith world prices.

10.55 W4ork pant driLls, could be proruyced at 54.61 rials per meter on4)/.4 w_th . tI' The ost cou.l be, reduced to 40.,'5 rials per meter wlth ::extI,:'L1

productivity increases and poLyester at $.046 per pound. To be conservativewCe will ass;;.,me a prlce of 54.2,l rSials ic mter t Uti co-t.,k't'4te wlth

world prices.

10 !56 Local consuImptioTr work clothing wo)uld probably lve demanded with arIoveracre s i - c-,fOt 3 - a JL4s fC an d 2S;" 1- :sea...a m II C l for t rou1 Ise-r s and 14-14/2" ne^k

size and 30" sleeve length for shirts. Export products, if to thie EEC market,wi,uld prob.ably avera-e.- ""/' ,o rL trLs Li :rs I 1 /2 I fJ ALA.) LOJALL L

IU.57 iEssimated rometers per dozent have been apptl.ieU tL theU veVa_;e siZeb

and the average price per meter with and without duty on polyester prices.It is assumed that any import duty Oll polyester wouud bUe rebated on e;:portedproducts. If polyester yarns were producedl in Iran, the cost to the Iranianconsunter, without duties, wou.La De less tizn shown.

2. Labor Productivivy

10.58 The ilabor content for sewing and finishing has been estimated bytaking a well-engineered plant in the USA and adding 35 percent to the timevalues. Observations of apparel and shoe plants in Iran indicate that thisshould be adequate for local conditions if the plant were set up properlyand correct methods and standards were applied.

- 143 -

Tabie 1.;0.4: ESJII±ATED FABRIC COSTS - WORK SHIRT AND WuRK PANT

Product Work Shirt Work Pant

Fabric twill drill

Construction 84 x 44 104 x 44

Width 39-1/2" 43-1/2"

Finished width 36/37 40/41

Warp 24 32/2

Fill 16 15/2

Work Shirt Work PantPresent Potential Present Potential

Productivity Productivity Productivity Productivity(Rials)

100 percent cotton 22.43 17.83 47.27 42.5C

50/50 poly cotton 26.81 22.21 54.61 49.74-w/duty at $0.55/lb

50/50 poly cotton 25.59 20.99 51.92 47.05wtdut-y .a$.4/l

Table 10.5: ESTIMATED FABRIC COST - RIALS PER DOZENLOCAL AND EXPORT WORK SlIIRTS & WORK PANTS

A^verage MI/D,z . Rl/MtrAias

Size 44" at 44" Dozen'o-ton

Men's work pant 32/28 16.7 52.00 868Men's work pant 34/30 17.9 52.00 930

50/50 PLUyLesteJL CottLoLULI

Men's workc pant 32/28 16.7 60.00 1,000Men's worlc pant 34/30 17.9 57.10 1,022

100% Cot::on

Men's short sleeve! work shirt 14-1/2 14.8 27.40 405lien's short sleeve work shirt 15-1/2 16.8 27.40 460Men's long sleeve work shirt 14-1/2/ 19.2 27.40 526

30Men's long sleeve work shirt 15-1/2/ 21.5 27.40 589

33

50/50 Polyester Cotton

Men's short sleeve work shirt 14-1/2 14.8 32.80 486Men's short sleeve work shirt 15-1/2 16.8 31.20 524Men's long sleeve work shirt 14-1/2/ 19.2 32.80 629

30Dien's long sleeve work shirt 15-1/2/ 21.5 31.20 670

33

- 144 -

10.59 Most apparel plants in developed countries work only one shift.However, in order to provide more employment for thie same capital invest-ment, Iran shouid work a two shift operation.

10.60 A production unit of 250 direct labor employees on sewing andfinishing (one shift) has been selected as ideal for the production of amixture of work clothing products. The production economies of scale dependupon the particular products produced. A unit of 250 direct labor employees,on one shift, is on the high side of what might be required. However, be-cause of the tremendous amount of training which will be necessary in thefirst real industrial apparel plant in !ran, a relatively large plant willhelp to absorb the training and set up costs through applying the necessarytraining efforts and techniques to a relatively large number of direct laboremployees.

10.61 The monthly production is shown assuming only one product is pro-duced. If an equal mix of work pants and work shirts were produced, theplant would have a capacity of approximately 7,500 dozen work pants permonth and 7,500 dozen work shirts in long and short sleeves. The annualproduction would total approximately 1,080,000 units of pants and equalnumber of shirts. The production of this one plant would satisfy its de-mand for work clothing for a purchasing population of approximately 6.3million if a wide range of alternative products were also available to thatpurchasing population at reasonable prices and good quality.

Table 10.6: ESTIMATED DIRECT LABOR CONTENT SEWING AND FINISHING

Minutes per unit and dozen units per month*two shifts, 500 direct labor operators

Standard With 35%Minutes/ for Local With 15% Dozen/

Product Unit - USA Conditions Excesses Month

Work pant 21.5 29.0 33.4 11,800

Work1 shit -S',/S 11. l4.8 1 7.1 23,400nU r,. ~1LI L L OfI J O I, * I I. ~ . , ?Sj'

Work shirt L/S 14.0 18.9 21.7 18,400

Assume 50% work pant, 26.4 7,500 pantsshit, nnf -irt

25% L'S worK shirt, uV sfnlrL

25% S/S work shirt

* Assumed at eight hours per day, two shifts, 20 days per month.

10.62 The annual fabric requirement for the plant would total approxi-mately 3.1 million meters at 44"/45" width.

3. Trim Requirements

10.63 A detailed study has not been made of the cost of trim materialsin Iran. The following costs have been estimated from information availa--ble in other countries. The work pant would require approximately 154.5rials per dozen in trim and pocketing and packing and the work shirt wouldrequire 108.5 or 104.5 rials per dozen depending on whether it is a shortsleeve or long sleeve shirt. The working capital requirements, at threemonths inventory would be approximately 5.9 million rials ($78,000).

- 145 -

I - I P7 7 T'C"'-T~~A I'rL1~ I'T'Tn TM TTA( j~vTv M' f 1 ArT~r DfTTl~t ''

ablLe 1.I L: . I Lti I 1FJ TIM, LNIN(,, IN &II' PJS..IrTM0` .')ACIINGWJ LL:QI..TT AI NT.

Rials/Doz. Work ShirtWork Pant L/S S/S Total

Buttons 9.5 15.2 11.4

Labels 9.2 9.3 9.3

Lining & Pock,eting 62.5 8.5 8.5

Thread 12.8 8.9 8.6(720 yds/doz on L/S shirt)

Cther (Pins, cardboard, 20.5 26.6 26.6cellubags, butterflitls)

Pac-king mn terial 40 n 400 4 0=n lnn

Total Rials/Dozen 154.5 108.5 104.4

$/D)ozen $2.04 $1.44 $1.38

lionthly production - (lozen 7,500 3,750 3,750 15,000

Working capita-l- requirement

at three months inventoryand in process

- Million Rials 3.48 1.22 1.18 5.88

-; 46,000 16,200 15,600 77,800

4. Operating Expenses

10.64 Estiimated operating expenses, excluding body fabric and trim, areshown in sumnmary on the following Table 10.8 and in more detail in AppendixA. Approximately 700 employees would have a monthly wage bill of 3.1 mil-lion rials, representing 57.1% of operating expenses. Depreciation on bui:Ld-ing and equipment is projected at 0.4 million rials per month on 50.8 mill:Lonrials of assets.

10.65 Total capitael requirements are estimated at approximately 170 mil-lion rials which includes 51 million rials for land, building and equipmnent-, 17million rials in wages and salaries during start-up, 22.5 million rials intraining and engineering assistance durlng the first 18 months of operationand 789 million rials in working capital. Working capital is calculatedassuming a three months inventory of raw materials and in-process materialsand two months finished goods inventory.

10.66 The financial, expense for the total capital requirements has beenassumed to be 9% per year and represents 23.4% of operating expenses. Totaloperating expenses are estimated at approximately 5.5 million rials per month.

10.67 A total return on capital of 20 percent per year has been assumecl.With financial expenses of 9 percent per year, profits are assumed to be 11percent per year on total capital or 1,870,000 rials per month.

TABL_,E 10.8

SUMMARY OF ESTIMATED MONTIL,Y OPERATING & FINANCIAL EXPENSES

NEW 700 EMPLOYEES GARMENT PLANT (TWO SHTIFTS)

OperatingExpense '/o of000's Rials/Month Total

1. WAGES; AND SiAL.AHLES

a. Direct labor - mfg. - wages 530 employees 2, 205b. Indirect - mfg. - wages 1 09 employees 388cI SA1ries - mfg 25 emDlovees 200d. Administration & sales - wages 20 employees 77e. dUministLration &Z sales- salaries Iv em__ployees 240

Sub-Total 700 employees 3,110 57. 1%

2. ASSETS DEPRECIATIONBuilding at 4% per year 18, 750 63Equip. mfnf at 12X% per year 27- 700 289Equip. others at 122-% per year 4, 375 46

O U I o ta l ., O ,0 IL v o ;, oI7 1

3. OTHER EXPENSES - PURCIIASEDSUPPLIES AND SERVICESa. Manufacturing 300h Aiministration 225

c. Selling 150Sub- toLal 65 I2. 4%

4. FINANCIAL EXPENSES AT 9%o PER YEARa. Assets, including land 51, 350b. Start-up costs, wages & salaries 17, 191

^.Sta-rt-up costs, outsireasstne22p0

d. Working capital 78, 900Sub-Total 169, 941 1, 27 3 23. 4%6

TOTAL OPERATING COSTS 5, 456 100. 0%

13 roP4 4 A t 1 M A 1 A A- 1 tO' 07A1 a JILL on 1/0 LL IjLdI djtJ1LdL 1 ( IU

(20% including financial expense)

- 147 -

10.6Q Thre trairing and start-up costs are high because of the produc-tivity and quality levels required to be competitive with international ex-

anu 'Loc.0L -*LnU wv:JI. .L-14 lalor n IcAus e I'e o par l 14nus. r. F -. .:1 A.--

intensive.

5. Estimated Cost Structure

10.69 Fabric, trima, packing materials and other purchased supplies andservices are estimated to represent 68.2 percent O0 the total product cost.

Wages and salaries are estimated at 14.9 percent. Depreciation, finanlcialexpenses and profits (before profits tax if any) are estimated at 16.9 per-cent of total product cost.

10.70 The sales price to wholesalers or large retailers is developedfor the three workclothing products (work pants, long sleeve shirt and shortsleeve shirt) and for cotton or cotton polyester fabrics. The fabric costs;were developed with present productivity and cost structure in the Iraniantextile industry. If potential cost reductions were realized by the textileindustry, it has been estimated that fabric costs could be reduced approxi--mately 15 percent for an 8 percent reduction in garment product cost.

10.71 Polyester prices have been assumed with duty for local consump-tion and without duty for export products. If local polyester were avail-able to the textile industry, fabric costs would be reduced another 5 per-cent and garment product costs for local consumption could be reduced another2.8 percent.

10.72 The sales prices for local consumption would be approximately 142rials ($1.87) per pant and 71 to 89 rials ($0.94 to $1.18) per shirt for 1l(Opercent cotton workclothing products. The 50/50 polyester cotton wouldsell for 153 rials ($2.02) per pant and 80 to 96 rials ($1.05 to $1.27) pershirt.

10.73 The product cost for producing a slightly larger average sizerange for export is shown for the samic products. It has been assumed thata minor duty rebate wouldl be realized on the imported polyester. The ex-port size ranges would be two to five rials more than local product costs.

6. Competitiveness

10.74 Market testing could not be undertaken within the scope of tlhemission. However, from observation and samplings, it is estimated thatthe quality workcloth products would have a broad appeal in Iran and thecost structure would be approximately 2/3 of the cost of locally producedproducts and have superior quality characteristics.

10.75 The export potential is also very significant. The duty, ship-ping and additional financing costs to the EEC markets would raise the costof the polyester/cotton work pant to 191.3 rials ($2.53) and tile work shirtto 105.6 to 125.9 rials ($1.41 to $1.67) per unit. Again, a precise marketstudy has not been undertaken. However, it is estimated that a competitivemargin oE 20 percent to 50 percent would exist. This margin could be used

T.ABL,E 1-0.9

ESTIMATEI) COSI STRCTITJJRE NEW 700 EMPL,OYEEGARMENT PLAN'T WO(IK CL,O'I'IIING PRODUCTS

Monthly ExpensesRiais $

Thousan(is Thousands ,'

1. Wages & salaries - 700 employees 3,110 41.1 14.9A. 1. . . 1. .A' 1 - I H r . I r,z. Asset depreciation - 44. Z mIlLion rilLS 398 5. 3 1. *

3. Other purchased supplies and services 675 8. 9 3. 24. Financial expense at 9% on 159.3 million rials 1,273 16. 8 6.15. Body fabric 11,680 154.0 55.76. Trim and packing materials 1,960 25.9 9.37. Profit 1,870 24.7 8.9

Total 20,9966 276.7 100.0%

PROJECTED COST PER UNIT - RIALS

Work Pant Work ShirtLong Sleeve Short Sleeve

100% cotton - Local consumption

1. Wages and salaries 22.0 14.1 11.02. Depreciation 3.4 2.2 1.73. Purchased suonlies and services 4.8 3.1 2.44. Financial expense 10.8 6.9 5. 55. Body fabr c - cotLton 2.2 43. I 33.7

6. Trim and packing material 12.9 9.0 8.77. Profit 15. 8 10.2 8.0

TIotal - Rials/Unit 141.9 89.2 71.0

- US$/unit $1.87 $1.18 $0.94

50/50 Polyester cotton - Localcons umpti on

Rials/Unit 152.9 96.0 79.6US$/Unit $2.02 $1. 27 $1.05

100% cotton - Export sizesRils/TTUit lA 6 93.7 76.2

US$/Unit $1.94 $1.24 $1.01

50/50 Polyester cotton export sizesRials/Unit 154.8 99.0 82.0TIS,/lJnit $'2 04 $1. 30 $1.08

= 149.=

to undUersell 'LocadL priLces, cover 'losses dUue to quality releJts and uamagbes,provide local transport where necessary, cover agents commissions and provideaduuit'Uo[a'L profIts to Iran.

10.76 The estimates are shown On the following TaDle 10. 10.

Table 10.10: EXPORT POTENTIAI - EEC MARKETS

W4ork ShirtWork Pant Long Sleeve Short Sleeve

Product Rials/Unit Rials/Unit Rials/Unit

1. Cost in Iran 154.0 99.0 82.0

2. Shipping - Freight 6.3 6.3 6.3

3. Shipping - Insurance 0.4 0.3 2.3

4. Import duty on value 17% 27.0 17.9 15.0

5. Financing costs at 9% -3 months 3.6 2.4 2.0

Total cost of export - Rials 191.3 125.9 105.6- US$ 2.53 1.67 1.41

Gllrrent local whn1esa:Le

price US$ 3.25-4.00 2.00-2.50 1.75-2.25

Margin for price comp:Llation,seconds and damages,additional profit and localtransport 28%-57% 20%-50% 24%-59%

7. Investment Required

10.77 The total investment required in one 700-employee garment plant'Ls estim.ated at 170 L n m, iJLl.l ii Wo.n r ial ($2 . .. i lln Al 4.UL-J UL Wo f AwhL 49 h& It.La.Lion rials

($647,000) would be foreign exchange. (See Table 10.11). The investmentper ~ ~ ~ A1.UU.LL1r L±L&IL±II~L 0UL.~ rJ ±A LLIL LU IL. 17 1,UJV~..per ern..p]oe 1 ecu i fnshed 4stocks) is esti.,ated at 195,000r rlals

($2,500) of which 70,000 rials ($925) is foreign exchange. This compareswithl an estimaited investm.ent of $23,200 per em,ployee in the cotton spinningand weaving (excluding finishing) sector, including $14,200 in foreign ex-LLLaLL6= . \

1IIAiJ' A~L}JL * UL II oa,,, D .IC XVSD L^ILILLL ±11 -Ut L sL,L ^& ^SAL.IllI6R LQUUL CLS*

jobs can be created in apparel compound to one job in spinning and weaving.

10.78 If start-up costs and working capital are excluded, the total in--vestment per employee in the apparel industry is estimated at 80,600 rials($1,065) of which 40,000 rials ($527) is foreign exchange. This compareswith 1,360,000 rials ($18,000) for spinning and weaving of which 900,000rials ($11,900) is foreign exchange.

10.79 The value added (subtracting body fabric, trim materials and otherpurchased supplies and materials) represents approximately 31.8 percent ofthe manufactured sales price. The total investment required for each $1.00of annual value added is approximately $2.18 (165 rials) of which $0.64 (49rials) is foreign exchange.

10.80 The apparel industry represents nign empioyment and value addedfor the capitawl investment required.

- 150 -

TABRLE 1V)11

C' r- - I A fl"f r lC'TTT- A tr' fl nrx A T -l A flTtf A T T WI T rY. C'rnT%M if flT m I

SUiMMviIVaRY Ojr I STIMATE I IIAI II_LtrrI -, C APTLI UN VES E I VIWN I

700 Employee Garment Plant - Txvo Shifts

Annuai Sales 250 Million Rials ($3,300, 000)1,080,000 Work Pants and 1,080,000 Work Shirts per Year

KliaLs i S. k. DollarsTotal Foreign Total Foreign

Capital Exchange Capital Exchange

Land 525,000 - 7,000

Building 18,750,000 - 247,000

| Equipment 30, 675, 000 28, 000, 000 404, 000 369, 000

Dut- 1,400,000 - 18,500 -

Start-up Costs 39,691,000 21,000,000 524,000 277,000

Working capital - Raw 40, 900,000 - 1,540,000 -

material and in process

WorKing capital - Finished 38, uuu, uu0 - 500,000Ustocks

Total 169, 941,000 49, 000,000 2, 310,500 646, 000

Total F oreign Exchange

Total investment/employee $3,300 (250, 000 rials) $925 (70,000 rials)

Tnvtrment/ey.ployer, ex- $2 ,50 (l 95,000 rialcs) $(925 ('70 000 rialc)

cluding working capitalfor finished stocks

I lnvestment/employee, ex- $1,065 (80, 600 rials) $527 (40,000 rials)cluding start-un costs andworking capital

Investment required for each $2. 18 (165 rials) $0.64 (49 rials)one dollar of valueadded per year

- 151 - ANNEX A

ESTTMA R* TNVJFSTMFNT ANI_ 0PElA TTMr C(WT"-Z

EWIJ 700-EMPTLYEEP rGARMEN'r PLAMT

Investment or MonthlyCaFL>^ttt ~~Start-Up Cot" Oeatn C¢

'000 Rials '000 Rials

1. Land - 2 acres 525

2. Building 50,000 fl: at 375 rials/ft 18,750D,epreciat:LnaJ'/er6

3. Mfg. equip2ent - 250 work places at75,000 rials/work place plus 9 millionrials for cutting,, pressing, electrical,bundle truck, smal.l boiler, etc. 27,700Depreciation at 12--1/2 0%/year 289

4. Other equipment, office, storage

Transport and miscellaneous 4,375Depreciation at 12-1/2%/year 46

5. Direct labor wages at 26 rials/hour,including fringe, 500 direct laborsewing and finishing plus 30 cutting 2,205Start-up c:osts equivalent 4 full months 8,820

6. Indirect mfg. wages, including fringe109 employees at 22 rials/hour 388Start-up costs equivalent of 6 months 2,328

7. Mfg. salaries 25 employees at 8,000rials/month 200Start-up costs equivalent to 7 full months 1,400

8. Administrative and sales wages20 employees at 24 rials/hiour 77Start-up costs equivalent to 4 full months 308

9. Administrative and sales - salaries16 employees at 15,000 rials/month 240Start-up and training at 4 full months 960

10. Miscellaneous mfg. expenses 300Start-tip at 4 months 1,200

11. Administration fees and misc. 225Start-up at 4 full mont)hs 1,125

- 152 -

12. Selling expenses, advertising and misc. 150

Start-up at 7 full months 1,050

Sub-Total 68,541 4_1_3

Sub-Total Assets Only 51,350

13. Financial expenses at 9%/year on assets 385

Sub-Total Start-Up Expenses Only 17,191

14. Financial expenses at 9%/year 129

15. Start-uD costs - outside assistanceOver 18 months period 22,500Financial expenses at 9%/vear 168

16( Workino ranital at 9%/yearFabric - 3 months 35,000 262Trim - 3 months 5,900 44Finished inventory - 2 months 38,000 285

17. Sub-Total Financial Requirements

Assets 51,350 385

Start-Up Costs 39,691 297

Working Capital 78,900 591

Total Financial Requirements 169,941 1,273

18. Total Operating Expenses 5,456

ANNEX B- 153 -

APPAREL FACTORY VISIT

FACT SHEET

COMPANY Foroushgahe Bozorge - Iran, Tehran

OUTPUT S:Lx separate production units producing as follows:

Pants 1Sits 2Dresses 1ChildrA~en's Wear 1

Coutourier Shop 1

No quantities available

NO. OF EMPLOYEES Approximately 90 employees, 10-12 on each line. Work

HOURS flYA Bnx-p wt ek i's LO h-ours. Starting pay is rials 60l per lay(!$.75), with progression based on management evaluation-.Average -ae no; knwn.t%1'1 - L I? - W Lrt t) L .- MLiWL L.

r~YnV,f,AT'KT,p -Af'nT-lC M1'.4 - IC a.. .. - - .~.41. 1 - - -C ... 1'IQIPN 11I.L-0~ T is factory usesU, prmai L.pCI.la .inLL sewers `ftom, East

PRODUCTIVITY Germanv. These are slower than most industrial sewingm-Achines. Only a few special rachines are employed.Because of the small units and the fact that continuityis poor, productivlty is low.

YUALLIX UNL) STJLIN, As with productivity, quality surrers rrom tne iack ofcontinuity. The factory has employed a designer forwomen's clothing.

_RlICES MAKELLLN( AiLi production is soid tnrougn tce company!s main de-partment store and branches in Tehran.

- 4ANNEX C- 154 -

APPAREL FACTORY VISIT

FACT SHE1T

COMPANY lPanama Shirts, Tehran

OUTPUT Dress and sport shlirts for men and boys. Manage-ment set present output at 500 shirts per day.Last annual figures available (1967) showed 65,000.

NO. OF EMPLOYEES Total production employees 40. Work week 44 hours.HOURS, PAY RATES Pay ranges from rials 100 to 500 per eight hours

with average of rials 250 ($3.30) per eight hours.

EQUPMENT M§'THODS This was the bcst equipped factory we observed.PRODUCTIVITY Factory was equipped withi modern, high speed

machines, primarily from Europe. Many specialpurpose machiines in use. Productivity approxi-mately 45 percent of un-engineered European fac-tory.

QUALITY AND STYLING Intrinsic quality of these shirts is good. Collarsand cuffs consistent. Company has specialized inwhite shirts, but appears to be moving towardstripes and other styled fabrics.

PRICES, Production is sold in four company stores (40 per-cent) and through an agent in the bazaar for therest of Iran (60 percent). Prices range from rials35 to 1,500 (S4.62 to $19.80).

- 155 -

APPARET, FACTORY VISIT

FACT SHEET

COMPANY General Modes, Tehran

()UT LI LMen's andc iboy's suits and pants, also so.me women'scoats. Output varies for men's and boys'. Manage-,ent set capra1city at 50 Co 70') suits per week.

Total output for 1969 reportedly 16,000 suits and1r, 0" pants.

IN. OF '.LOYES Cot 75, iL parts 25, CULLtting I0, Iisc. -)0. W o[rki

HOURS, PAY RATES week is 58 hours. Pay ranges from rials 2,000 to6,000, per month or rials 75 to 230 per uay ($1.00to $3.00 per ten hour day). Most earn rials 150($2.00) per ten hour day.

y =EL Primarily basic machines witn some speciai equip-PRODUCTIVITY ment for serging, buttons, buttonholes. Produc-

tivity approximately 30 percent of average un-engineered European factory.

QUALITY AND STYLING Pant quality reasonably good. Suit coat heavyand bulky. Fit and design need improvement.

PRICES, MARKETING All production is sold in the company's store onBerlin Street, which carries a complete line ofapparel for men, women and children. Prices formen 's suits range from rials 2,300 to 4,600 ($31to $62).

- 156 -

XI. FUTURE M(01IP1MENETfS, PR)OPOSEIN' S_T\TECY AmT) POICIE.S

INTRODUCTION

11.1 We have attempte(d to determine the installed capacity of thieIranian textile industry and take a nmeastire of its present efficiency. Welhave examined and assessed the raw materials used and formed an opinion onthe competence and capabilities of thie workers and the management. We havealso made projections of the market for woven cotton blends, woolen textiles,and knits, taking account of possible future clhanges in the relative use offibers. We lhave made reconmmendations for modernizing and rationalizing theexisting industry which we believe will help to imnprove the efficiency ofits operations.

11.2 The view that we have taken of the future suggests that consider-able new textile capacity will require to be installed if the rapidly risingdomestic demand is to be met fronm holome production. The cotton spinning andweaving industry in Iran is entirely resource-based except for dyes andchiemicals. It is also feasible that a synthetic fiber industry will bedeveloped in Iran, sufficient enough to provide the synthetic fibers whichwill be demanded in the future by the textile industry.

11.3 Our investigations have sthown that with proper modernization, theIranian textile industry would indeed be internationally competitive. Inthese circumstances we feel convinced that Iran should continue to look toits own production to satisfy her growing requirements of fabrics and cloth-ing. On this basis we shall ascertain the number of new spindles and loomsthat will be required up to 1980 and allocate them over economic-sizedplants based oni current teclhnology. We shall also formulate a strategy formodernizing the existing industry by using as a catalyst some of the gov-ernment-owned mills whichi are due to be privatized. We shall establish abroad rmeasure of the total financial requirements that will emerge until1980, and discuss the question of deconcentration around Tehran and Esfahan.We shall examine the nrospects of exnortinQ varn. fabric and clothing in-stead of m1erely exporting the surplus of ginned-cotton as done today.

11.4 Finally, we shall discuss a set of policies relating to control,licensing, tariffs and structuring of th' textill indiustrv which mightlhelp to sustain a drive towards increasing efficiency, in the larger eco-nomic interest of Iran.

- 157 -

A. Exoansion of the Cotton Sector Textile Tnduistrv

1. Cotton Sector - Weaving

Present Capacjty and Production

1 1 ' Tn rh it1A 7 rn thrA Armmnctf-4 ftwi,sra nof tl-nc. -nAs, o s- r

the number of plants, spindles and looms presently in place and on the way,so far as the organizel indu,str-al sectorsconcerr.ed. I ad-l t4on there

is a fairly extensive handloom sector as well as a small-scale sector,using we be]ieve, as ma:ny as about 1,000 power loom-S huilt in EsfahLan.

In the absence of clear and authentic data we have been at very greatpns noto establis:t the capacity and output of these t!:ree ectors *nter

se, and reconcile them with the available official data for total consumip-t4on anA production of textiles from 19591 through1 1968. Official sta-is-tics not being available thereafter, we have made estimates of output andconsu..,ption up tfo 10971 as shLown in TabAles 11.1 anA 11.2.

11.6, Tn 1967 th-e units in th-e in;'ustr4al sector prodluced '321 mllllonSit .. I .' i L L .SSC 5 CL- it C A I -Lt C L. Li l '.S L L _jt S L.L. j_LU

meters of cotton and blend fabric. Based on the 14,050 looms available andan estimate of1 totaLL wcLrkl in L-Lg 1h IUo u rLs andIIU fabric construction, tLie ±industry

averaged approximately 64 percent efficiency. In 1969, 15,783 looms werein place on cotton. Stated capacity was 417 million meters. This woulUbe the equivalent of approximately 75 percent efficiency.

11.7 Accurate data is not available on current total production. Hlow-ever, observations in the mills and interviews with production managerslead us to estimate current weave room efficiency at approximately 70 per-cent. Based on the number of looms in place and on order, actual productiornis estimated at 387 million meters in 1969, 397 million meters in 1970 and412 million meters in 1971 (Table 11.2).

11.8 If the forecast of demand is correct for 1969, 1970 and 1971, thehand loom and small scale power loom production would have to representapproximately 128 million meters to 137 million meters. This estimate isreasonably close to the "balance" of production of 119 million meters in1967 (Table 11.1). Price increases in 1970 indicate that demand exceedseffective capacity. With observed loom efficiencies of 70 percent in 1970for the industrial sector this means that the 137 million meters requiredfrom the non-industrial sector was perhaps not forthcoming in 1970.

- 158 -

Table 11.1. ESTIKAT'FS OF PRCDUCT'ION ANI) CONSUMPTTION OF WOVEN COTTON/SThTHET[C

Production in miillion -meters %a'uea (iEr Loon meeters)Small-scale nower / FialWs-2

,eai Industrial And i-and Lc.omsb, Tota1E (mi] lion) IMport' 2/ 2/

l6° 2,7LL 15) 319`236 3,286 126 362

196:L 2 69 3, 7 7 6 86 355i/62 3)L L,311 l,7 3' 15963 3&6 5, 5 3:L 2

19 6l L2' 8, 6j3 7 1!' 1 L113-. h2L9 8, 229 20 1 2 - LL35-3/ L3a

? -) 3-,-3 Li 1l '--7 ;S 361967 321 4/ 119 0Lo 10, OO 43 1 L4 2

1q63 - -~3 1 g: 2 5?

19&; 3875/ 126 - -

1?97 397./ 137 73LJ / - 5 3 L /171 L2/ 13L4 1L2/ - -5L6

1/ Mfinistry of Economy, Bureau of Statistics, Report on the .1esults ofL Annual Industrial Survey in 1967( 1340), page 'L4.

29/" Ministry of Economy - data supplied to the mission.,3/ Textile Industrv in Ira.n. Plarn Orcaniization of Iran, April 1968.T/ List of actual producition f'or individuaL mills from the oinistr of Economy .

r/ Estimate cf Installed capacity at 'O5' efficiency for cotton and svnthe tic.E/ Estimate of the Ylinistrv of Economy.

7/ '-'ssion s estitmate of consumption. See 7 le 9.26 Chapter IX.o/ Or the assumption that the baLance sf consumption was met by this sect:r.

- 159 -

Table 11. 2: COTI'ON SECTOR (EXCLUDING SI,K) LO]I'S INSTALLED AND PRODUCTION CAPACITYAT VALRIOIJS WEAVE ROOM EFFICE;NCIES

Calculated capacit.y at,S .tptLed

77- Loxns in place Productior- caapazitv 7 O0 79 0%

1'766 14,05- 317-:' 320 34¢6 371 396 215Probable product:ion efficiency no-------

1'? 6732L3/

5 968

15,783~' 387-/ 8/ 360 33? L13 4L2 h69 497

1970 l6.l5?'/ 39T- 368 397 426 L 82 51C6' ~7/ 81?7 16, 782-' 412Ž- 3° 382 L12 4L2 4172 502 53l

1/ 6 days/wk, LL hrs,/wk, 5O wks,/yr equals 2L,600 meters/yr/loom on looms of 160 nics/minutle producing fabricaveraging 5r ics'.CS per inchi at 70', eff:icienc,v .

2/ Textile Industry in Iran, Plan Origanization of Iran, April 1968, quotes 14,200 looms for a production of320 mi.llion meters in 1966. 'List of individual mills showss 150 looms on silk in 1966., producing apoproxi-mately 3.0 mi'llion meters/yr.

3/ List of individual mills, exc:luding silk of 6.5 million meters in 1967.

L/ List of individual mills sho-v:ing actual looms on hand minus 1450 looms silk.

5/ List of individual mills showing 'looms on order plus looms on hand.

6/ Informna tion from Ministry of conornv Licensing Section, additional looms on order.

7/ Esti-'mated at 7^T< effi'ienzy.

8/ Stated capacity f:rom list of individu,sl mills, mi-nus T.0 million meters silk caoazit'.

- 16( -

Expansion required - looms

11.9 If the hand loom and "other" production increases to 144 millionmeters in 1975 and 154 million meters in 1980, the organized industrialsector will have to increase Its production from 412 million meters in1971 at 70 percent capacity, to 507 million meters in 1975 and 663 millionmeters in 1980. As shown in Table 11.3 the number of looms required toexpand up to the anticipated demand will depend on the efficiency achievedin the weave rooms. Weave room efficiency is a function of all operationsincluding spinning and through to weaving. Present weave room efficiencyis estimated at 70 percent. In developed countries, weave room efficiencyusually averages 87 percent to 92 percent.

11.10 If the improvements recommended are made for blending up toweaving it is practical to assume that the industrial sector's weave roomefficiency can average 75 percent in 1975 and 80 percent in 1980. Basedon these assumptions, Iran will need approximately 2,500 new looms by1975 (rounding off the present looms to 16,700) and an additional 4,300looms betweeni 1975 and 1980, for a total expansion of 6,800 looms. Therange in the estimates is shown below:

Looms in Place 1971 16,782 - say 16,700

Average weave Room efficiency: 70% 75% 80% 85%

New Looms required from 1971 to 1975 3,900 2,500 1,300 300

New Looms required from 1975 to 1980 6,300 5,900 5,500 5,200

New Looms reauired from 1971 to 1980 10,200 8,400 6,800 5,500

Expansion Renuired - SpinninR

11.11 In 1966, 680,000 spindles were reported in place, 1/ in two kindsof facilities: spinning and weaving mills, and spinning mills only. In196'), rr tnta,l of 764,454 snindles were in place with 70 percent in theweaving mills. Additional spindles were on order bringing the total upto 786,854 in 1970. 2/ LAcenseq hav1- heenri n,thnrized for additional spi,ndles

which should bring thle total up to 908, 204 i.n 1971. 2/ Approximately 68 per-cent be Itn the wea)vIng mIl lT

1/ Textile Industry in Iran. Plan organization of Iran, April 1968.

2/ Ministry of Economy, licencing section.

Table 11.3

ESTIM1TE OF LOOM RISIJTREMEITS FORFUTURE DBa"ND COTTON SECTOR

KL wUU_ uctl'w. tdLU vs.Amated deand

-(in mill.ic)n mets) jeave looms

rotal pro- Hand looms Industrialduction o,r + other 2/ sector Pi Looms in Looms required at % efficiency

Year demand I/ - place 4/ 65X -7°u 75% An raeV, 1, 1 7 -IiorE%1)V I i er. i. -VxA'%

19-L 43 1131 ,^5 1'90 190 10)0 12f)14'

1967 4hO 119 321 (?)

1968 453 I?) (?) (?)

1969 515 128 387 15,783 16900 15750 14650 13750 12900

1970 534 137 397 16,157 1740t) 16150 15100 1415( 13300

1971 546 134 412 16,782 18050 16750 15600 14700 13800

1972

1974

1975 651 144 507 22200 20600 19200 180(Y) 17000

1976

1977

1978

1979

2/ Actual production 1966, 1967, 1968 from Minitry of Economy. Demand estimates 196? to 1980.

-. Hand looms and other is the difference between reported total production and industrialproduction..

i/ List of individual mills. Actual production 1967 at 64% efficiency based on looms in place.Production in 1969, 1970 and 1971 estimated at 70% efficiency for looms in place. Productionfor 1975 and 1980 assuxmes hand looms and "others" will raise output to 144 and 1514 millionmeters resrpectively.

4/ Industrial list only. Excludes silk.

Looms required at 2.4,600 meters/looam/yr at 70% efficiency for production or demand of theindustrial sector onily.

- 16 -

i1. 12 From observations made dlurinig our visits to the individuail miilis,a representative sample of the spind(les in place indicates a front rol1speed capacity of 1/0 tFPH and an average yarn count of 24. Operating144 hoturs per week, 50 weeks per year, the 680,000 spindles in 1966 wouldhlave produced 04,000 tons of yarn at 65 percent efficiency. lhe tons ofcapacity at various efficiency levels are shown on the following table11.4. In developed countries, spinning efficiencies average 87 percentto 92 percent.

11.13 It has been assumed that thtese spindles supply all the yarn forthe industrial sector of the woven cotton industry as well as yarn for thiehand loom and small-scale power loom production. It has also been assumedthat the cotton yarn used by the knitting industry is supplied by thesespindles.

11.14 Table 11.5 shlows our estimate of spindle requirements up to 1980.In compiling Tables 11.4 and 11.5 we have taken 7.5 meters of fabric toweigh 1 kg. in 1966 and gradually reduced this to 7.1 meters per kg. around1980. It will be seen from Tables 11.4 and 11.5 that in 1966, 680,000spindles produced 62,300 tons of fabric at about 63 percent efficiency.From our visits to the mills we formed the opinion that the spinning isoperating at about 65 percent efficiency.

11.15 We believe that if the existiing industry is properly modernized,spinning efficiency should reach) at least 70 percent in 1975 and 75 percentin 1980. Based on the demand projections for rotli woven and knitted fabric,total spindle requirements would be approximately 1,015,000 by 1975 and1,380,000 by 1980 (see Table 11.5). This would mean the installation ofthe following new capacity:

1971 to 1975 107,000 spindles

1975 to 1980 - 270,000 spindles

The range in the estimate is shown below.

Spindles in place 1971, 908,204 say 908,000

05% 70% 75% 80%

New spindles (000's) 1971-75 185 107 42 -

New spindles (000's) 1971-80 - 472 377 307

1'roposed Strategy for Expansion

11.16 To summarise, our estimates of new plant requirements are there-fore:

Table f-U: Yearly. §inning Productitn (Batsed on average count 24's - 40.65 metric)1/

;jea wnrn _SpjM nn crn

!iU 1i8lIs Total Total Tons Produced at % EfficiencyYear S dles Spindles §idles 7;

19 680, 2/ 64,000 68,800 7:3,770 78i,800 83,500

19:7

1966

1969 539,5i6 224,938 764,4563/ 72,200 77,700 83,300 89,000 94,3C0O

1979 5:1,916 224,9311 786,85 3 74,h00 79 ,60) 85,300 91,000 96,60

1 971 6163, 6239,338 9C8,2C04 4/ 85;,20 9 1,850 9,3'03 104,800 110, 10

1/ 6 days per week, 1Ui hours per week, 50 weeks per year equals 4.45 poujnds per spindle per week at170 RPM front roll- speed, average count 24L 0 7'Q efficiency.

2/ Te:xtile Indust in Iran. Plan Organization, April 1Q683/ List of actual produiction units and spindles in place and on order4/ includes additional spindles on order: Ministry of Economy

Table 11J5

Estimate of Spinning Requirements for Future Demand

Cotton Sector

TonsTons Knits SpindlesCotton (Cotton Total in Thousand SPind.es Re uirea u %Ericiency

Year System o Tons Place 70% 75,i d05 85% 2

1966 58,500 3,800 62,300 680,000 615 574 539 506 478

1967 59,200 4,800 64,000 632 590 552 520 492

1968

1969 72,200 7,500 79,700 764,454 788 735 690 650 614

1970 74,400 7,800 82,200 786,854 812 758 711 667 628

1971 85,200 9,000 94,200 908,2020/4 931 869 815 765 720

1972

1973

1974

1975 89,350 13,300 102,650 1,015 950 890 836 790

-1976

1977

1978

1''79

1980 115,000 25,300 140,300 1,380 1,285 1,215 1,170 1,065

1/ 6 days per week, 144 hours per week, 50 weeks per year equals 4.45 lbs (2.02 Kg)per week at 170 RPM front roll speed. average count 24's (40.6 metric) at 70%efficiency.

2/ Includes expansion and new units for which licences have been granted.

165 -

Looms Snindles

1971 to 1q75 2500( 107non0

1975 t) 1QRO 00 'nf2709 OOC

1971 to 1980 h RnO 177 nnn

11 17 Tin Form,l ati'na thecs new n- !nt nrrect1 nn Tao hn,o ni1c nni lm-

plicit strategical assumption. We have assujmed that the existing industryis capable of feing effectively r and tart f ais

weaving efficiency from 70 percent in 1970 to at least 75 percent by 1975ar.d 80 percent by 198(), and raising spinning, efficiency frov.. 65 percent in1970 to 70 percent by 1975 and 75 percent by 1980. In addition to improv-ing quality z.;d reCLucin.ga._ cts LZ- , this A wc, .4l zdd 2 411l _iio LC f fabric

by 1975 plus another :30 million meters by 1980 on existing equipment. Weshall di'scuss, a strategy for impIet.mnting suh cloder-isaton as-well aI UL LU~ .1 LI~ ± t .JILp~1I~II L.L LL b LR 1UU% I LI ITi-0 L.ULk L d2 W~J J..1. O

the significanit investment that will be required later in this report.;he -addit'-onal recquirerinients to 'no' are assuri,,ed to 'b-e provided as f'ol'lows:AL Lt: CLULli L±ULU1.L. I IU.LLtV. I1. 1L I 7J idbUIULU pUV.UtUd .LUW

Itl -7 I_ 7C in <c _n ion I on71 7 / j iV . a. : " .o

raVrlc (millioL n rie t eLerHand looms 10 10 20Modernization n 30 59New Units -66 126 192

105 166 271

Yarn (tons)Modernization 5,880 7,270 13,150New Units 11_±70 p 380 42,150

17,650 37,650 55,300

11.18 This leaves us with the need to expand into new mill.s. We haveconsidered the conditions and requirements of Iran in the light or currenttextile technology and economies of scale, and have planned economic spin-ning and weaving units to produce the addit:ional yarn and fabric which wililbe demanded by 1980. Only this will ensure the level of efficiency thatIran should want to acihieve. We recommend that these new units be greymills, leaving the finishing to be done by finishiing sections in existingunits. Whether further finishing capacity will be required, and if so,whether this would best be provided by large independant finishing plantsis a natter which we recommend, should be fuirthier studied in depth. Amodern economic-sized finishing plant would be capable of handling up to100 million meters of fabric a year. it is possible that between 1975and 1980 the additional 156 million meters of industrially produced fabricper year inight require one or twqo new tinishing plants. As cotton/polyester blends should be in production by this time, high pressure finisl;-ing equipment will be requlired. The investment involved in two centrally

- 166 -

located finishing plants withl 100 mlillioni meters annual capacity eachwoulcl broadly be [iS$20n million (1560 million rials) inicluding, workingcapi tal.

11.19 We take the view that an economic--sized unit in Iran should htave500 loom,is, balancedl by a sufficienit nuniber of spindles depending oni thefabrics aind yarn counts being, manufactured. For the purpose of estimatingfuture capital requirements, we lIave planned on the basis of units makingthe popular chiit fabric witlh a conistruction of 40", 60 x 58, comprising24's warp and 24's fi]ling. Suclh units wouldl be balanced with 15,912Spinldles.

11.20 Table 11.6 shows the estimated investment required in one suchspin and weave unit and Table 11.7 the investment required in one spinningmill making sales yarn.

11.21 The additional 2,500 looms required from 1971 to 1975 would in-volve setting up 5 spin and weave units with 500 looms and 15,912 spindleseach. These 5 units would provide 79,560 or say 79,500 spindles, leaving27,500 spindles to be set up in one spinning mill making sales yarn. As27,500 spindles make an economic-sized spinning mill, we have used thissize in planning the spinning mills from 1975 to 1980, although we areaware that the size could even be sliphtly higher, depending on the countsmade.

11.22 From 1975 to 1980 the 4,300 additional looms would require 8.6spin and weave uinIts having 4;300 looms and 136,843 spindles, leaving133,157 spindles to be set up in about 4.8 spinning mills. We have usedthese fractionn1 units fnr the purpose of Petimating canital investmentin order to keep our estimates in line with the capacity objectives.

11.23 Usine the models contained in Tables 11.6 and 11.7, our estimatesof the , ,n4 -i1 4-t-cmarfc f-m-,i -rc tr 1-hc mntiA -in t , na rn- mi1 1 c: -r chown

in 'Table 11.8.

11.24 It is interesting to compare the expected performance of the new-investment with a.t i;n the existing cotton textile industry.

- 167 -

Table 1ii.6: INTvESTIvEOTT IN NEw GAEY SPINING AND rWKV,NG MILL

lt0 00 x 5) 8

2)4 warp 24S fillingr500 looms15,912 spindles

Total Cost Foreig.n Ixch;Lrge

Land 54,700 sq. meters at 600 rialsper square meter 441,600

Buildings 13,684 sq. meters at 6,000rials per square met;er 1,io,o000 110,000

Maclhinery 14,035,000 4,035,00(Import Tax (5%) 201,750

Working Capiltal (estimated)Y 1,125,000_

Tot;al Dollars 6,907,350 4,145,000

Tot,al Rials (millions) 518 311

At 75% efficiency - 13,200,000 meters of fabric

At 80% efficiency - 14,650,000 meters of fabric

1975, 5 mills at 75% efficiency - 66,000,000 meters of fabric

1980, 8.6 mills at 80% efficiency - 126,000,000 meters of fabric

300 workers: 75% efficiency - 13.7 meters/man/hour

80% efficiency - 15.2 meters/mian/hour

k Assumes that selling arrangements will eliminate capital requirements forfinished stocks.

- 168 -

Table 11.7: INVESTMENT IN NEW GREY SPINNING ONLY MILL

24s average count27,500 spindles

Total Cost Foreign Exchtange

Land )49,250 square meters at 600 rialsper square Tneter 397,5o00

Building 12,300 square meters at 6,000rials per square meter 995,000

Machinerv 2,475, 000Import Tax (5%) 12h,000

Working capita i/ 800,000

Total Dollars 4,791,500

Total Rials (millions) 359

At 70% efficiency - 2,775 tons yarn/year

At 75% efficiency - 2,975 tons yarn/year

1975, 1 mill at 70% efficiency - 2,775 tons yarn/year

1980, 4.8 mills at 75 efficiency - 1h,280 tons yarn/year

200 workers

Assumes that selling arrangements will eliminate capital requirements±o "J S t E-,' h t ,1 U't

- 169 -

Table 11.8 INfVESTMlENT IN EXPANSION AND MODERNIZATION - COTTON SECTOR

-1C) 7 1 -4- -i 1 C7 r~ - n C?ff 4~- n,~ Imr n, 2 .-?n I nmQr I v- -97I1U0 -J-to 195 9L71 1980 L/U 1971± to0 _ 980 197L t o i198C

Foreign ach.Spinninag &Mil] Un.niUs 8 unit 1 nitsSpinning Mil:ls 1 4 4.8 5.8

Capital Investment:

New Units US$ US$ UJS$Land 2,605,5O0 57705,760 8,311,20oBuildings 6,515,000 14,270,400 20,785,400 5,000,000Machinery 22,650,000 )46,581,000 69,231,000 69,231,000

import tax 1,132,150 2,330,250 3,463,OOWorking capitalt 6,2425, ooo 13,515,000 19,9O40,00 U

39,328,250 82,402,410 121,730,660 74,231,000

Modernization 56,439,750 50700, 000TOTAL new units and modernization 176,170,410 124i,931,000

Finishing Plants:Possible investment, in 2 units

1975 to 19R80 202000,000 10,000,000

Estimated Total Investmentin Cotton Sector $ 198,170,410 134,931,000

hnploymentSpinning and weaving mills 1,500 2,580 4,o80Spinning mills 200 960 1,160

1,700 3,540 5,240

j Assumes that selling arrangements will eliminate capital requirements for finishedstocks.

- 17'J -

Investment _er worker (with working capital)

Investmentinvestment Total Workers per worker

tfs' $

Existing industry 321,562,910 46,059 6,982

New units 121,730,660 5,240 23,231

11.25 The annual cost of the output of 192,000,000 meters from the newunits will be $l0,175,OWO less than that from the existing industry with-out modernization.

Investment per kilo (with working capi!1.

Investment Total. productioni InvestmentUS$ Tons of cloth & per kilo

yarn

Existing industry 321,562,910 79,700 $4.03

New spinning and weavingunits: 1980 121,730,660 42,150 $2.89

Productivity - Meters per man per hour(includes grey and finishing)

Cotton print cloth, 100 cm, 23.6 x 22.8 (39-1/2' - 60 x 58)

24s warp 24s filling (metric 40.6-40.6)

Iran - present 6.1 meters

Iran - new units: 752 efficiency 13.780'r efficiency 15.2

lurkey 14.4U.S.A. 44.6Japan 16.1 "

Germany 17.7United Kingdomi 13.8

11.26 The total investment requirements until 1980 cover only domesticdemand. If exports are successful, an exportable surplus may have to bebuilt up vith further plant capacity. We have also not allowed for anyreplacemiients of equipment during 1971 to 1980 as substantial nmodernizationwill Dresumably have taken place, and none of the new equipment should need

to be replaced during the decade.

- 171 -

B. Exnansion of the Woolen and Worsted Sector

11.27 The production of the woolen and worsted sector in 1967 was about7=8 mnillin mererq and the conqumntion 11.8 million nmeters- the hblance

being met by iniports. Licences have been issued to bring the donmesticn,arity uin to abont 19 million meters. The demaflndel for wonolen ann wo.rvrsted

fabrics is estimated at 16.3 million meters in 1971, 22.0 million metersIn 1Q75 annd 4 A. mI14,on metersc in 190. A-,umIno thOt 20 npercnt of the

demand will continue to be absorbed by imports of special constructionsand qualities, dem.and for locally produced products will be:

Mi41llon Mseters

1971 t3.0

07 , *7rc

IJ7 If- II

On n17 '

,. .' .0 .1 J * - - - - s .. .

Witl[ an insta.iLed capacdity of 12.0. rn±±i.J.uL miterLs, LLtI expan1iStLoni LequireIIlenlLS

would approximately be::

Fabric Sales Yarns TotalYear lJiiJLlion fjeters Tons ions Tons

1971 1.0 3i7 100 470

1971-1975 i.5 2,o60 530 2,590

1971-1980 15.5 5,800 1,500 7,300

In 1980 the breakdown would be 4,400 tons of wool and 2,900 tons of man-made fiber.

11.28 Most of the present production of the indtustry is in worstedfabrics. It is estimated that as the demand for woolen and worsted pro-ducts increases from 7.5 percent of the tota:l tons in 1967 to 9.1 percentin 1980, some of the increased demand will be in the lower priced woolenfabrics and yarns. It is estimated that the 7,300 tons of wool and man-made fiber yarn will be used approximately 4,500 tons for the worstedsystem and 2,800 for the woolen system .

11.29 The finishing requirements have been estimated at approximately2,500 tons top dyed, 1,100 tons stock dyed, 2,200 tons yarn dyed, 400 tonsskein dyed and 1,100 tons piece dyed.

- 172 -

11.30 Because of the relatively complicated mix of demand from thewoolen and worsted sector, it is difficult to translate the total addi-tional requiremenits into a clear configuration of economic-sized units.An economic worsted unit would hlave an annual capacity of spproximately2 million meters and contain 72 looms (Suilzer type). The total capitalinvestment required is estimated at approximately 10.2 million dollars(773 million rials) of wlhich approximately 5.6 million dollars (425million rials) would be foreign excliange, as shown in Table 11.9.

Table 11.9 : ESTIMATEI) CAPITAL RKVUiRE;MVIN'TS OS E EC0NOMiC-SL/,tKU WU-RSTIEl) UNITTWO MILLION METERS PER YEAE

72 S11].ZEP LOOMS AND) COMPLEMENTARY SP INNIN(G AN-D lINISPING EQUIPMENI'r

67-1/21' 64 x 622/42/70 warp and filling

Total Investment Foreign ExchangeUS$ US$

Land (704,000 ft ) 528,000

Building 176,000 ft at $8.50 1,500,000 200,000

Equipment 5,350,000 5,350,000

Duty 5X 279,000 -

Working capital . 2P500000 _

TOTAL 10,157,000 5,550,000

/1 Assumes that selling arrangements will eliminate capital requirementsLrorfinlhed tock-s.

lUr L±L1 u SL -a Cnes(men

1 1.31 AN b~~~~~~roadj estni,,ate of th'e capita inet,ln l4kl oberqiein producing the additional. 7,300 tons of fabric and sales yarn by 1980wi1l be as follows;

Table 11. 10: ESTDIATED CAPITAI., INVESTMENT WOOLEN ANY) WORSTED SE(CTOR

1971 to 1980

7,300 tons per year

Total Investment Foreign ExchangeUS$ US$

Land 3,700,000 -

Building 12,500,000 3,000,000

}.quipment 44,000,000 44,000,000

Duty at 5% 2,300,000 -

Erection, technical. assistance andtraining 6,000,000 4,200,000

Start-up losses 6,000,000 -

Workingp capital -- 18,000,000 -

TOTAL 91,500,000 51,200,000

" Rials (mil:Lion) 6862 3840

/1 Assumes that selling arrangements will eliminate finished stocks.Equipment includes approximatel.y 46,200 spindles worsted, 10,000 spin-dies woolen and 500 Sulzer type looms. This capacity would provideboth the fabric an(d sales yarn required by 1980.

C. Exnpinsgon of the KVntt Fahric Sector

11.32 The knitting industry is growing rapidly. From an estimated 9,000tons in 1967, representing 12.3 nerrpnt byh w.caght and 17.4 percent by thevalue of total fabric consumption, it is estimated to increase to 46,800tons in 1980, renresentin 26-3 percent by weight and 31.4 percent by valueof the total fabric consumption.

The advantages of knit fabric production over woven fabric areseveral:

1. Relativelv low ranittal Inwacetm-et

2. Operating from purchased yarns, it i a relative1y simple pro-duction process.

3. The economies of scale are not very significant. A small pri-vate investor c-n be in business with the purchiase of only a fewknitting machines.

- 174 -

4. The sewing of knit apparel is relatively simple and can be easilyintegrated by the knit fabric producers.

5. The lead time for the total pro(luction cycle is relatively short.The risk of inventories and working capital requirements can beminimized.

6. Econoiiic production quantities are relatively low. A style miar-ket can be easily revised.

7. The techlnology is relatively simple with only one skilled mechanicrequired for every 20 to 30 knitting machines.

8. The knitting industry has a relatively large, stable market inmen's underwear which can provide a market base for gettingstarted and developing broader ranges of styled products.

Table 11.11: ESTIMATED KNIT PRODUCTS DE>ANDIRAN - 1980

Total Tons

Sweaters 3,420Knit shirts (men's and boys') 3,320All other outerwear 12.550Underwear - (men's and boys') 11,100Underwear and nitewear (Women's and Girls') 8,280Infants apparel 4,540Socks 2-6I,0Hosiery (stockings - Women's and girls') 910

l'otal 46,800

11.33 Individual estimates have been prepared for each product group onthe number of unlits and employees requireu anid the investment required inequipment and buildup. It has been assumed that approximately 35 percentmore production employees would be used than are nornally used in thedeveloped countries. It has also been assumed that knitting operatesthree shifts and sewing two shifts. It has aiso been assumed that aiiyarn would be purchased in package sizes ready to knit. If we assume thatthe existing knitting industry can satisfy the estimated demand or 15,700tons in 1971, and that it is equally distributed between the estimatedproduct groups, then the expansion requirements from 1971 to 1980 areapproximately 31,100 tons. The production would be distributed among65 units. Economic size estimates show that 35 ot the units would be in-tegrated knitting, finishing and fabricating (sewing) units, 14 would beintegrated knitting and fabricating using outside finishing, 4 would be onlysewing and 12 would be only knitting units.

- 175 -

TOTAL RE'QUIREIMEPTS - INCLUDIN'G SOCKS ANI) IIOSIERY

1971 TO 1980

Number Number Equipment Production Building Area1' Units __u___ Lnmpioyees ('00() FT1)

Total Knits 31,100 65 $52,300 20,80() 2,780

11.34 The total investment requirements, from 1971 to 1980, includingall working capital and start-up costs are estimated at 9,045 million rials($119.8 million). Of this amount, approximately 4,675 million rials ($61.9million) would be foreign exchange. TIhe total investment per employee, isapproximately $5,200 of which $2,690 would be toreign exchange.

11.35 The sales value, at factory selling prices, would be approximatel-y13,200 million rials ($174 million) in finished products. The retail priceof the products would probably total 18,900 million rials ($249 million)which would represent -approximately 21 percent of the total consumer expen-ditures on clothing in 1980.

11.36 The value added, substractirig purchased yarn, trim materials,packing materials and other purchased supplies and services would be ap-proximately 35 percent of the factory price. The total investment requiredfor each annual rial of value added is approximately 148 rials ($1.96) andthe foreign exchange investment is only 77 rials ($1.02). 'iThis is similarto the investm,ent requ:Lred in indlustrialized woven apparel manufacturing,excluding the investment and value added by weaving and finishing thefabric.

D. Expansion of the :[ndustrialized Woven Apparel Sector

11.37 Expenditures on clothing products, at retail levels, excludingshoes, jewelry and miscellaneous products averaged 7.3 percent (71.5 per-cent x 10.1 percent) of total consumer expenditures in 1968. 1/ It isestimated that clothing expenditures will increase to 8.5 percent (72 per-cent x 11.8 pe:rcent) of total consumer expenditures by 1980.

11.38 Using the present private wholesale and retail distribution sys-tems, factory prices of industrially produced clothing should average70 percenit of the final retail prices. If all clothing consumption wereconverte.c to industrialL apparel production, the consumption would be appro-ximately 27 billion rials ($356 million) in 1971, 39 billion rials ($515million) in 1975 and 63 billion rials ($832 billion) in 1980.

11.39 Almost no inclustrial apparel production exists in Iran. Onlythree plants could be i'dentified with 50 employees or more, totaling 322employees, in the woven apparel sector. I'he total employment in industrialapparel production, including both woven and knit products, is probablyless than 1,50() employees.

1/ Household Survey -- Bank Markazi.

- IC/ -

Table 11.12: TOTAL ESTIMATED CAPITAL Rl`(QUIJIEMENTSKI'llTINC INDtES'rY - IRAN

1971 - 198()

65 unit knit, finish and fabricate, 31,100 tons/year, 20,800production empJoyees, 23,000 total employees, 13,200 million rials ($174million) at factory prices.

Total. Capital Foreign Exchange$ Million $ Million

Land 0.6

Buildings 3,390,000 FT at $6.00/FT2 20.3 1.5

Equipment 52.3 52.3

Duty at 5% 2.6 -

Start-up Costs 15.0 8.1

Working Capital ' 29.0 -

Total $ - millions $119.8 $61.9

Total Rials - millions 9,045 4,675

Investment per employee - $ $5,200 $2,690

Investment per one dollar ofvalilu addpdIvpnr S1.96 $1.02

Tnvsctment ler ton nf fnbric 350 S1,990(

/1 Assumes that selling arrangements will eliminate capital requirementsfmor finished. stocks .

11.40 A m,ole' 'as been constructeA of a prodluctive apparel plant with,700 employees (2 shifts) producing and selling 250 million rials of workclothlng products for anLL average VL JI ,0 rials per- C"pLyCC perJ. yeCL

($4,700/employee/yr). The present "industrialized" apparel sector (per-naps 1,500 employees) probably LhLas approx'mately thiCe same sales per em=ployee but through relatively much higher prices and not high productivity.If these assumptions are correct, the presen; LiIUZLJ.LA sppaeL. sLcLVL

probably satisfies 2 percent of the total apparel demand with sales inthe range of 540 million rials.

- 17 7 -

Table 11 .13ESTJ24ATED KN]:TTING EXPANSION REQUIREMENTS 1967 TO 1-980

Kni t. PI i i -h Fabhri1cate-P'roduct Q3Slft) (- Shifts)~ (2Shfts) Total

Sweaters: 2,7621 tons/years, 505,000 dozen/'yearNo. of 2U1i3 3No. of Machines )44 40O

EF)qu ip Jn, en t r) ) r9 c r >M 94) L.O. 94 or) MJ. * 1. MJ%.J

No. of Employ-eeses 65 20 1,200 1,285:

Knit Shirts: 2,682 tons/year, 980,000 dozen/yearT\,To . -- 4' T T- - 4- - I . S I .A J. U i UII. LL, L44 2it

No. of Machines 60 400E1quipmi-ent( $ooou) $1-, J 680 $1,) 50 q) uuP-~IL

No. of Employees 160 110 1,200 1,)4 7CTh-' 1 -3]... A--..-.fC)\f V " fl) I(11 r'-, -1) l.D L-LLUJ-11r Kl-t-a<\uou rl - 4 )

Other outerwear: 10,136 tons/year, 2,229,920 dozen/yearNoT~. of- .S ~T -- 1Ci 0 1 1-~r

No. of M4achines 375

No. of Employees 2 500 324 7,700 8,52L,.Building Areas(0U00 F-± ) L44UO 240 _00 980

UJnderwear, Menl.s & Boys': 8,965 tonis/year, 4,940,000 dozen/yearNo. of Units 18( 9 6 1CNo. of Machiines 5ShoEqui.pement($O00)\ 4 ,320 $3,600 ouuo ~ o~No. of Employees 54o 365 2,400 3,305Building Areas(000 1'2 0 18 0 110 h70

1Jnderwear& Nightwear, Women's& Girls' (Tricot):O,658 tons/year, 2,h0k, 000 doz6en/year-

No. of Units 13 6 41No. of Mach-ines 195Equipment($000) $ 2,730 $2,400 $ 720 $ 5,850No. of Employ-ees 2 270 3201,2320Building Area.s(O00 F2) 130 180 90 h4OG

TFnf ants: 3,66 b'-'tons/ year, )t, 033,50 ) dozen/yearNo. of Units 10 5 7 10No. ofL Machinte 200Equipment($000) $ 4,000 $3,250 $ 700 $ 8,)450No. of Employees 2 340 27028h0c J., L50Building Areeas(000 Fl' ) 120 150 110 380

Socks: 2,,165 tons/year, 4, 763,000 dozens/yearNo. of' Units 1No. of Machinies 2,00oDEquipment ($00o) $15,oooNo. of Employees 2 4,050Buildinig Areas (000 Fr ) 800

Hosiery: 735 tons/year., 3,23)4,000 dozens/yearNo. of Units" 2No. of Machinies 200Equipment ($000) $ 2,000No. of Employees 1.080Buildirig Areas(000 FT2 160

- 178 -

11.41 Because of the enormous local demand and the opportunity to sig-nificantly reduce costs to the consumer while raising quality levels, itis recommended that Iran actively develop an industrial apparel industry.The investment required, including all start-up costs (which could be ab-sorbed by initially higher sales prices), and all working capita]. (someof whichi could be discounted) is only 250,000 rials per employee. Of thistotal investment, only 70,000 rials ($925) is the requirement for foreignexchange. The export potential is also enormous if a competitive apparelindustry is developed.

11.42 Because of the great number of employees and the high levels ofproductivity required to be competitive, it will take time to develop theindustry. If concentrated efforts are applied, it is estimated that 7percent to 10 percent of the local demand could be satisfied by industrialproduction of woven apparel in 1975 and 15 percent to 20 percent could besatisfied by 1980. If the new knitting and existing industry produces21 percent of the estimated clothing demand for 1980, approximately 36percent to 41 percent of all apparel consunmption would be industrializedby 1980. Even at this rapid rate of growtlh, the liandcraft, small shoptailors and home sewing apparel production will still have to increasetheir production by 40 percent to 50 percent in order to satisfy the in-crease in demand between 1971 and 1980.

11.43 If the industrialized sector grows to satisfy 15 percent to20 percent of local demand by 1980, the employment required, assuming veryproductive plants, is estimated at 25,000 to 34,000. If the new unitsaveraged 700 employees on two shifts, 35 to 48 new units would be re-quired with a total investment in the range of 4.6 to 6.3 billion rials($60 to $84 million). The requirements in foreign exchange would beapproximately 1,710 to 2,350 million rials or 22.6 to 31.0 million U.S.dollars.

- 179 -

Table l1i14ECTT,MATLT D D'MAMfn W AD)DAD1T DDnT-PTTL'UCT A.NTn DPO1'("1'iThP

DEVELPMENT OF AN APPAREL INDUSTRY USING WOVEN FABRIC

EquivalentT. oLa,L IExpendiUL Lur-e Va'lue of

Total Est. %4 Consumer on Indistrial Prodluctiorl ot'uons-uwrier on xpendituires Aippare'l at ,t, LL A,A'Liztmm

Year Expenditures Clo-thing on ClotlhinL: Factory Prices Industrialized ApparelBillion Rials Mi.llion I ii is 7 IoII, ol' I teail) .i'/illioft Ai.L: s

1,68 h13 7 3 -150

1911¢ )n nr 510 7.6 38, 70 2105 I 2% SOq' _ .U 0O, /UU K /,> UD b 4U

Minimum Estimate

1975 699 8.0 55,900 39,100 7% 2,700

1980 1,058 8.5 90,000 63,000 15% 9,4560

Mlaxilmum Estimate

1975 699 8.0 55,900 39,100 10% 3,91(

1980 1o58 8.5 90,000 63,000 20% 12, 6(O

- 180 -

11.44 More sl:udy is required to estinlate the actual mlx of products.hIowever, the first 9) to 13 uniLs projected betwee n 1971 and 1975 shouldprobably concentrate on resource based products whicht would have a localappeal, contain a niiimum of style chnnges and would be suitable for even-tual export. A feastbility study should be made for production of thefollowing products:

Probable No. of large, 70)0E-mployee Units

1971 - 1975

Mlnei,m. Maximu

Mens. & RLvic' wrkcrlnthinp 2 3

mpn'A & Rnvcn' Hitipitans 1 ?

M -- --n -& -n q r% t- - hi I)p r -hirt - -A, -

Men's &. Roysut Sport and Dress Shirts 3 4

MHn ' & RnvAi' 'hrun.eprq 1 2

M n'z ' Boys' Tfailred Suii ts- CnXqat-Q 1 1

Wom.en's & ('.rls' Cotton Dressesand blouses 1 1

9 13

11.45 The feasibility study should determine the investment required,the probabie cost of the products, tile probable locni and export marketaccepLance, the distribution systenm to use and the probable sources ofcapital and ownership structure for the development of the industry.

- 181 -

Tnbie I l. 15: .S1 JMATI. PJIPL') IEiiNjT Arij A Ai'i''APIT iNV1;STr7NT REQ;;Ri.iD FO; T}HE.

DEVEl .OPMEINT OF TMlE IThDUSTPIALULD APPAREL SFECTOR US ING WOVEN FABRIC

1971 to 1975 1971 to 1980Minimum Maximum Minimum Maximum

Est. % of demand satisfied by indus-trial production 7% 10% 15% 20%

Demand for production from new units -million rials, factory price 2,200 3,370 8,910 12,000

Est. number of new employees at357,000 rials/employee 6,150 9,440 24,950 33,700

Equivalent number large units at700 employees/unit 9 13 35 48

Investments required - Million Dollars

Land .066 .093 .240 .343Buildings 2.240 3.250 8.720 11.900Equipment 3.660 5.300 14.250 19.600

Duty at 5% .183 .240 .654 .908Start-up costs 4.760 6.880 18.550 25.300Working capital /1 4.910 7.140 19.100 26.200

TOTAL - $ 15.819 22.903 61.514 84.251

Foreign exchange - $ 5.880 8.400 22.600 31.000

TOTAL - Million rials 1,186 1,714 4,611 6,326

F'oreign exchange - Million Rials 441 637 1,710 2,350

/1 Assumes that selling arrangements will eliminate finished stocks.

- 182 -

E. Grand Total - Capital Investments

11.46 The total. capital investments for the textile industry are summarize8as foll.ows:

Table 11.16: TI'XTILE INDUSTRY CAPITAL INVESTMENTS - 1971 to 1980

Total Investments Foreign Exchange

$ $

Cotton Sector

New Units 121,730,660 74,231,000

Modernizationa 56,439.750 50,700,000

Finishing Plants 20.000,000 10.000.000

198,170,410 134,931,000

Woolen Sector 91,500,000 51,200.000

Knit Sector 119,800,000 61,900,000

AnnnrP1 Sertnr 61;514.000 22.600.000

470,984,410 270.631,000

Million Ria1s 35,559 20,432

- 183 -

F. Strategy for Modernization

1. Cotton Sector

11.47 In planning new capacity for future gorwth in demand, we haverelied heavily on the scope for modernizing the existing cotton sectorto improve its efficiency; We have assumed that this move will raisethe existing industry's output from 412 million meters of fabric in 1971to 441 and 471 million meters by 1975 and 1980 respectively. At the sametime we expect a saving in the cost of production of 4 rials a meter,that is $24,950,000 per year on the output of 471 million meters.

11.48 We are conscious that the most difficult problem with regard toa scheme for modernization of any industry which is largely privatelyowned, is to build in an adequate mechanism for ensuring that the schemewill be widely adopted and implemented. In this regard we have consideredvery closely the impending privatising of the government-controlled mills -

Chit-Sazy, Behsahr, Shahi No. 1 (under the Iran Factories Group) and ShahiNo. 2 (under the Industrial Credit Bank). These four mills alone haveabout 25 percent of the present total cotton sector loom capacity, whilethe remaining four government-controlled mills, they comprise 38 percentof the present looms installed.

11.49 There is no doubt that the government mills are acting to holdthe price line, with demand currently running ahead of supply, and wewonder if this will continue to be so if these mills are immediately pri-vatised. On the other hand we see great possibility in using these fourmills (or even all eight) as a vehicle for modernizing the entire industry.

11.50 We recommend that the four government mills be rationalized intoefficient economic units producing quality products at the lowest possiblecost. If successful, this would create a low-cost efficient nucleus with-in the industry, providing effective competition at home, and perhaps evensuccessfully exporting abroad. We believe that the pressures of competi-tion that wouli be buiLt up, together with expanding output, would inducethe units in the private sector to rationalize as well.

11.51 The IMDBI is now considering the purchase of Chit-Sazyv Behsahrand Shah:L No. 1. The objective we are recommending could be pursued byeither rationalizing the mills before sale, or selling them with an under-standing that the buyer would follow through with the rationalizationscheme. Similar considerations would apply to the remaining four mills.

11.52 At present all four government mills are integrated spinning,weaving and finishing units. Chit-Sazy in Tehran, and Shahi No. 2 in thenorth are two of the best mills visited. Shahi No. 1 has replaced consider--able equipment,, but is weak in the weave room. Behsahr has very old equip-ment for spinning, weaving. and finishing. Shahi No. 2 has a worsted mll;complete with a finishing plant.

- 184 -

11.53 Our investigations into these mills were not deep enough to allowus to present a specific rationalisation proposal. However, it is ourgeneral opinion that a good scheme of rationalisation might leave one finish-ing plant in Tehran and one in the north, with the remaining units concen-trating on certain families of fabrics, with certain types of machinery.In order to accomplish tlhis, it probably will be necessary to transfermachinery between plants. At the present time Shahi No. 2 has a worstedspinning, weaving and finishing plant. The division could be operatedwithin the present buildings but consideration should be given to trans-fering the unit into a separate facility or selling it to owners presentlyin the worsted industry.

11.54 In the process of rationalising the four government mills, itwould stand to reason to put them under one corporate structure, althoughthe units could be independently managed operationally.

11.55 The improvements in the government controlled mills could be madebefore or after the mills are sold to the private sector. However, therationalization and modernization studies should be completed before plansare finalized for selling so that:

a) Units that should be put together or that have significantpotential cost reductions through combining production plans,are not separated. If the study indicates that some rationalisa-tion of production will be economic for all the mills, theseplans might best be implemented before the individual mills aresold.

b) A fair price can be established based on the investment re-quired and the potential profitability of the mills at givenprice levels.

c) The purchase and the sale can be made with a plan of theimprovement which will be made in order to satisfy the govern-ment's obiective of maintaining prices while modernizing theindustry and orienting it towards eventual exports.

Units wlhich should be put together would logically involve one productionolanning and marketing orranization in the future. The extent to which thiswould be practical will depend upon the results of the modernization andrationalisation Rtudv. Produc-tion nlanning; marketing and distributionshould be included as a part of the in-depth study of the eight mills.

- 185 -

11.56 A careful study should be made of the eight government controlledmills. The study shiould identify potentLial improvements, plan the imple-mentation of these improvements and estimate the cost and benefits ofrealizing the improvement. The study shiould include:

a. Specific production plans, using the total production ofall eight mills as a base.

b. Specific equipment purchases.

c Specific operating areas which can be improved, the costof making these improvements and the probable effect ontotal product cost and quality.

d. Specific equipment transfers and expansions or contractionsof facilities, their probable cost, the timetables andtheir probable effect on total product cost.

e. Recommendations on which mills should be kept together, andwhich could be separated in the event of sale.

f. Estimates of potential profitability, at given productprices.

g. Estimate of probable fair value of the mills, at a givenreturn on investment, knowing the potential profitabilityand the additional investment which is required.

h. Specific recommendations for production planning, marketingand distribution.

11.57 At the conclusion of this study, the government can decide toeither rationalise and modernize first and theni sell or, discount the pro-bable fair value and encourage the purchaser(s) to rationalise and modernizethe plants. Perhaps conditional sales could be negotiated.

11.58 Because of tlhe objectivity and technology required to make sucha study, and in order to complete the study in a given amount of time andcost, it is recommended that outside assistance (experienced textile con-sultants) be retained to direct the study and prepare the recommendations.It is estimated that the plans and potentials for modernization, rationali-sation and distribution for the eight mills could be completed in approxi-mately 5 months at a cost of approximately $150,000 in foreign exchange.

2. Woolen and Worsted Sector

11.59 The worsted sector is presently not resource-based because ofrelatively coarse quality of Iran wool. For this reason, and because of thelimitation of time, the industry was not studied in depth. The fabric and

- 186 -

yarn production of the Iranian industry competes witil imports. In planningthe expansion requirements of the industry, we have assumed an Iraniancapacity of 12.0 million meters per year in 1972 and we have assumed thatimports would represent approximately 20 percent of the total Iranian con-sumption of local production. If the existing plants (7.8 million metersin 1967) and the new plants under construction, can not achieve the 12million meters, the demand can be satisfied by imports.

11.60 Of the plants visited in the woolen and worsted sector, onlyVatan in Esfahan (1.3 million meters/year) is outdated and in serious needfor modernization or liquidation.

11.61 It shlould be possible to develop a woolen industry in Iran whichproduces woolen yarns and fabrics that is at least partially resource-based on Iranian wool. This shoul(d be further explored.

3. Knitting Sector

11.62 Additional information is required on the present installed capa-city and present operations of the knitting sector. As the expansion po-tential is very significant for this industry in the next ten years, a studyin more depth is recommended to deternmine the structure and capabilities ofthe present Iranian knitting industry, provide more accurate estimates ofpotential demand for knit products in Iran, and develop a strategy forassisting the present industry to modernize and expand to meet the demands.

4. Woven Apparel Industrv

11.63 The present woven apparel industry is judged to be not sufficientlydeveloped to consider modernizing the existing industry. With the projecteddevelopment of an industrial woven apparel industry, the small sewing shopswill still have to expand 40 percenot to 50 percent in the next ten years.

11.64 It has been recommended that more detailed production feasibilitystudies and marketing plans sthould precede any malor investments. Themarketing plans may include tihe establishment of an organized marketingeffort, outside or in parallel to, the present wholesaling system. If suchan organization is developed, it could also benefit the small producersthrough subcontract nroduction on stvle items. The marketini organizationcould purchase and cut the fabric and send it out to the small shops to bemade upn anr returnpei for distribution to the cuRtomers of the marketingorganization.

- 187 -

G. Capital Requirements

11.65 The estimated capital investments for modernization and newcapacity in the cotton, wool, knit and apparel sectors amount to $470,984,410or 35,559 million rials. Of this amount, $270,631,000 would be requiredin foreign exchange.

11.66 In Chapter II we have shown that about 41.5 percent of the presentinvestment in the textile industry has come from the two government banks -Industrial Credit Bank and Bank Melli -- plus the IMDBI. An analysis of theproject proposals covered by the licenses issued for new spinning and weavingunits since March 1969 shows that of the proposed total capital investmentof 1,600 million rials, a sum of 620 milliorn rials or 38.75 percent isexpected to be loaned by the banks as follows:

Million Rials

Industrial Credit Bank 180IMDBI 220Other Banks 220

620

11.67 If one can assume that the banks will continue to finance about40 percent of new capital investments, this will leave 21,335 million rialsor $162 million to be found as equity capital retained earning.s and short-term borrowings. The floatation of public issues of capital by privateenterprises is non-existent in Iran todavy and the ineffectiveness of theTehran Stock Exchange is hardly likely to alter this situation too soon.To what extent entreneneurs will be canable of sunnortino the reaufredexpansion of the textile industry from their personal resources, is a matteron which we are tinablp to naqs iticiYPment7- A 1nrcge nArt nf the "gan" infinancing is almost certain to be represented by foreign exchange expendi-ture. so that the need to nrocure foreian funds is very likely to ariseWe strongly recommend that a competent study be made of the means for en-couraging the growth of an effective canital market- nartirularlv to enSurethat private savings are mobilized and channeled into industrial development.

H= Deronnr onitra t ion

11.68 Sheer physical constraints (e.g. limited water supply in Tehran)provide adenuate sunnnort for the government nolicv of deronrentrAtion aroundTehran and Esfahan. At the same time we came across cases of hardshipsuffered by existLng mL11lc in rhPQe arceas whirhl annarently sometimesa fniondthemselves denied even replacement equipment for the purposes of modernization.

- 188 -

We do not believe this to be the deliberate intention of the government.We visualize great scope for rationalization in the existing industry,and foresee a considerable number of newv units being installed in the next10 years. In the course of rationalization it is very likely that thenumber of independent units inside Tehran and Esfahan would be somewhatreduced, but the resultant units would be more compact and productive.

11.69 We would recommelnd against spreading the new units all over thecountry. On the contrary a great deal would be gained by adopting aschenme of regiornal concentration. In discussing the need for modernizationand assessing the cost benefits that miglht accrue, we have admitted theinevitability of a reduction in the work force in individual units. Weare too aware of the social problems that would be created if the redundantworkers were to remain unemployed.

11.70 This leads us to recommend that thie new units should be set upin the north, along the southern shore of the Caspian Sea. Many of theexisting mills are located here, and if these are modernized, the surplusworkers could most usefully carry their skills to the new units, thussolving the twin problems of unemployment as well as that of manning thenew units with trained workers. This is also thle part of the countrywhere the bulk of the cotton is grown and most of the ginning plants aresituated. Russian and the Eastern Bloc seem to be developing as thelargest export market for Iranian products, wlhich are shipped across theCaspian Sea. Should some of the new units be efficient enough to beexport-oriented, they would find themselves ideally located here, forshipping their products not only to Russia and the East European countries.but also to the E.E.C. by road through Turkey. Lastly, the idea of alarge satellite finishing plant would be more practical in an area wherethere would be a concentration of spinning and weaving plants, turningout sufficient grey goods.

I. Exports

1. Woven Fabric

11.71 According to our nroiertinons thie domestic textile industrv in

Iran will consume by 1980 about 40,000 tons of ginned cotton more than itiQ onncimina nt thp monmpnt Tf thp tnt-l nrorduirtin nf rqw rnttan iQ not

increased, there will be a corresponding cut back in exports of ginnedcotton. Assuming an export price of $600 per ton f.o.b., a reduction of40,000 tons in ginned cotton exports would lose the country $24,000,000of fore4gn excha-nge incom.e.

- 189 -

11.72 The feasibiLity of extending cotton cultivation will depend onthe further availabil:Lty of suitable land, sufficient water for irrigation,and the development of new high-yielding varieties of raw cotton.

11.73 In any case,, our findings indicate that if the Iranian textileindustry were to deve]Lop along the lines recommended, it would be in astrongly competitive position even more so after modernization is implemen-ted around 1974/75.

11.74 We have already recommended that the staple length of Iraniancotton makes it ideally suitable for work shirt and pant fabric- either100 percent cotton or 50 percent cotton-50 percent polyester. In thechapter on mocdernization we have shown that the notential costs on thenefabrics should be over 4 rials lower per meter. In Tables 11.17 and 11.18we compare these notential cnots with international nprformance= It wil1be seen that Iran could be competitive in the export market at presentnrodustivlty l!evels= This shniol hp fuxrther exnplred. Exports of fabricwould increase the value of the exports to about 4 times the value of thecotton content. Exports of 10,000 tons of finichei fahr-ic .wonul thevrfore

make up for the additional 40,000 tons of raw cotton, required to meet thegrnwing lncAl tywtillp rpn,iirpme.ntcz ha, 19Rl)

- 190

Ta.ble 11.17: '511,iA1.AY ()l ixTEiTlIMrJ, 11 hAW,IA (,(;,l C,(fl1,ATl1) Liii' ( GiTil;IC C0fli', :(,

CALGCU LA'i'T;D F'Oh G kUJOT I dA 1 C] AT'l lil( ,lY .; '1.'0 O 2'11U.1 l,XI 0kV (l' IlA TI ' i 1.....

1(OOX, CO)l'j(iTO

IJilit, ( (I

Irarn Turhkey U.S.A. Ctrvda-t K:irirdc;r, Ge rtWtrlV J( 'F ,-,:7

obrk S- i t 1 va'w':i c ( pci.als per meter)

2)15 war p 1.6 filling

Rat material 6. 08 7.39 733 7f3 !57 7 !/9 7-;!

Process Inaterial *4.3 )4.)L3 I..644 ).69 5.13 5.9" A 6 C 6*o°

Libor i.6y 2.15 5.09 6.39 7.69 78 3.LO ,.c

Overliead 7.68 8.67 9.5)4 i.65 10.87 12.10 8. 66?

Total per menter(rials) 19.88 22.04 26.40 30.31 31.26 33.73 26.C5 21!.02

Work Pant Fabric03-1L 2i7° | L -xll

32/2 warp 15/2 filling10Ol, cott,on

Rawi material 17.88 17.66 16.09 16.95 17.3)4 17.62 17.00 16456

Process material 7.50 7.02 B.75 10.17 7.05 7.63 7.77 7.88

Labor 2.)49 6.78 12.22 13e64, 16.67 17.31 8. ;3 9.65

Overhead I .53 25.60 19.87 27.O) 2)h.91 2)1.66 22. 69 18.09

Total per meter(rials) 42.40 57.06 56.93 67.80 65.97 67.26 55.99 52.LQ9

*Note: Process Material Cost for Iran Adjusted.

- 19i -

'rable 11.18: Th 1 ,S1UMA,\y Cl iUfl' I Al, 1! PAI:lA N mo')';T'o; COI,AR) OTvr 2 ( . o ')i' i-"CAL,ClUi ATE I 'DJR £ I:I!)U'lT1?I A I. C IfYll ','J'YLWO '1'0 T H1104 EI Hi cr (:',ivrl Vi;:

50,i, GO'T"i'i /U ,., 1'0J,YyI;;'.I';JI?

IIran 'TU rh!Y U.SI.A. C,LrG'mdI K, LKinr Cc!.imln -11 riyJ oi' I '-. -

Wot'k W;i hi rt. l '1ar1:'i.

79:179"' - l.<021t-", ,-:rn '10s tCillin-,-

-50V Polycs;ter - 50N, Cotton ( in por meter )

Hlla m:ltcrial 8.',6 9.25 9.20 9.31t 9.34 9.]5 9. 3 9.J

Froces;s Mlatcrial *4.43 4.43 I4.J 4 t.G69 5.13 5.97 6.0o' 6. c-

Labor 1.69 2.15 5.09 6.39 7.69 7.87 3.60

Overhead 7.68 8.67 9.5% i.i.65 10.87 12.10 8.81 6.J

Total por moter

(Riais) 22.36 24;.50 28.27 32.07 33.03 35.39 27.82 25.87FU a is v 4L . .') .o . .I . .. .U

Polyester nost per pourr!$04.l $0.41 $0.hi $(.41 $0.41 $0.41 $0.41 $0.41

Work Fart.PabricL3-1/2' - 1C)L0 x 14l432/2 warp 15/2 filling50' Polyester - 5(%, Cotton

Rai; material 21.014 21.05 20.26 20.70 20.89 21.03 20.72 20.70

Process material 7.50 7.02 8.75 10.17 7.05 7.63 7.77 7.88

Labor, 2.49 6.78 12.22 13.64 16.67 17.35 8.53 9.65

Overhead 1i.53 25.60 19.87 27.04 24.91 24.66 22.65 18.0'

Total per meterias i c A An. .i Al l 6 1.1 if C! o 6. 7r.6 7 59.7' 56.2

Polyest cost :per pound $0.41 $0.41 $0.41 $0.41 $0.41 $0.41 $0.41. $0.41

*Note: Process Material Cost for Iran Adjusted.

- 192 -

2. Made-up Apparel

11.75 Table 10.10 in Chapter X shows our estimate of the export potentiaJ.in tLeI r C L-1-a rELs oi wark patLs and sLiLrLs WhEiCh COULU De LUXnCU OUL by anorganized apparel industry in Iran. The margin available between the dutypaid, landed cost of Iranian exports in the L .E.C. and the prices rulingthere, should amount to between 20 percent and 59 percent. It is believed'that a large market for these products exists in the E.E.C. and Iran mightvery well be able to exploit it. This should be further explored.

Government i?olicies

1. Tariff Policly

11.76 At least 2 or 3 years will be required before modernization orexpansion of the textile industry beginis to yield surricient additionaloutput, to bridge the growing gap between requirements and present supply.Meanwhile if prices should rise substantially we cannot see any otheralternative but to allow imports, of coarser and finer variety of fabrics.This woulci put pressure on the mills and encourage them to be more efficient.,Simultaneously, it will tend to wean the marginal mills back to the coarserfabrics which they are more competent to handle.

11.77 The policy of import liberalization may be used as a dynamicdevelopment tool. Whether this policy should be used in the long run asa,n instrument for improving and maintaining the efficiency of the textileindustry is an important; question whiich the government might consider, asdiscussed later in this report.

2. Income-tax and Excise Duty

11.78 It is difficult to assess clearly, the impact of income-tax onthe textile units. Its incidence is obscure, as is the real financialsituation of the mills. In the circumstances, the government may considerimposing excise duties on production, which should be easy to collect bykeeping an inventory of what comes into the finished stocks warehouse.Excise duties being ad valorem levies on quantitative output, should tendto encourage greater efficiency in order to earn larger margins. There isof course the tendency 1:o pass on an excise duty to the customer by raisingthe selling price, but if sufficient competition prevails the pressuresBhould stLll rest largely on the producer.

3. Industrial Licensing

11.79 We are in agreement with the government's decision to privatisethe mills it owns either directly or through the banks. Wlen this iscompleted the entire industry will be in the private sector. We have re-

- 193 -

commended that all new units thac are set up sa.ould be of economic sizeand equipped to attain the highest possible efficiency. If this course issuccessfu-lly followed, an industry containing inherently sound units wouldbe created. However, economic size units could strain the capital re-sources of private investors. In a developing situation however, thestructure of industry cannot remain static. If demand is again allowedto run ahead of supply, the industry would rapi(dly slip back into complacencyand inefficiency with a sheltered market.

11.80 The raison d'etre of an industrial licensing system is clearlythe need to direct scarce capital resources into areas which are in accordwith a scale of national priorities - presumably without waste. The draw-backs however are twofold. One, the licensing authority is responsible fortaking a view of the market, which can be more efficiently done by indi-vidual entrepreneurs undertaking risk. Two, the system possesses no meansof ensuring, that those new proposals chose to be licensed are more effi-cient than those that mnight be reiected.

4. Evalluation and Recommendations

11.81 In the absence of an effective capital market in Iran, nrivateenterprise will find it a major problem to raise the huge funds requiredfor future exnansion. Other recommendations made in this chapter arearrived at holding down textile selling prices in Iran. Therefore, untilcosts of nroduction have been redured through modernization, it is unlikelythat enterprises will generate much funds to re-invest. Moreover, thelarTgest nart of the van wiould comnrise forpign exch2ng, making it- necssaryperhaps to procure external funds.

11.82 In these circumstances, it is recommended that the Government ofIran eonsiders cettinc up a Textile Industry reornaninatinn Gorporation

(TIRC), somewhat on the lines of the Erstwhile Industrial ReorganizationCorporation in the U.K. This latter body has done excellent work in the'

sixties, in rationalizing and strengthening some of the key British indus-tries. It spnnsoredd And ii the spectaolar reoranizat-inn of the

British electrical industry through the take-overs effected by the GeneralElertric Co Tt was an autonnnmousc onrnorantioin et tin b,y the Bri-t-4ih G-r-n-

ment with allocated funds which it could use for bridging finance.

11.83 The TIRC proposed for Iran should also be an autonomous "corpora-tion" headed byafdynalc industrial manager. This would help it to getaway from possible bureaucratic attitudes. The TIRC would have the follow-inb bnrad functions:

iz Talrtlon oftel ovenmen tmls rationdthen 4se llng modtonization of thie g,overnment mills, and ttien selling them topriat shsareholders.

- 194 -

(b) Enterinq into acreements with the textile industry onobjectives such as moderniization and rationalization, anda program of incentives and controls to ahcieve thlion (tax;credit, import controls).

(c) Negotiating and obtaining foreigni loans, and disbursingthmni to the government and nriu;tP mills for modernization

anid expansion.

(d) Studying and recoimmending import licenses for approvediinmi-nf-lt nprch2sPcs -rr guide M eve nnnt a1onng dsirerd

lines.

(e) Constituting itself into a focal point for the whole textileindustry, to allow comprchensive ronsiultation and uinifiep

direction.

(f) Recommending, from time to time, measures to induce efficiency,panrticu,larvly tr , a, cont-ro,l!ed sysctm of imnpNots

11A L Iran'sz industrial development was initiated with the cimple

strategy of import substitution of consumer goods, aided by a set of gener-ous incentives, mainly import protection, long-term low-interest loans andtax concessions. In 1963 the import protection was raised to a completeban on cotton textile l.mports, although1 woolen/worsted fabric continedto be imported under a protective duty. Investment in textile mills wasmobil4ze-d through th sttn up of 1oen n mils wh4,ic 4n the~ tHi4r4-

and after World War II spearheaded development. Large allocations of fundsAI. L. .it.. hit c .L A. ta -. vt k, t Fhi L e -. J.J e . W0 1 e. t.. Af at Ofi O2AL & tt e.a Ae 10durigth Seve-Yea *.Pvl. ans in te pos-war yas,. a.= l s o aumne Dcapita.. 0l.

investment in both the public and private sectors.

11.85 This strategy and the related policies did indeed succeed inUuiluding up LranL's textileJ indUtLry. FroLm1 LtWU LcULLtLI LtAL.xtil 1 6LL.LJ LiL 1710,

there are 62 in 1971; from 1 woolen textile mill in 1935 there are 10 atpresent andu anothZer '4 on t.1 ay Tn cotton 'abrlcs the country Is nowpi. b~iI dLA duoLL1~ ~tUL I-.LI Wdl . Lii~. L LIJL IdL1 ~ LI U&L ~ LU

100 percent self-sufficient, and in woolen fabrics to the extent of over- - --71L...17I percent. TLLere are certainly no riuonopoly conditions, andU although govern-

ment mills own :32 percent and 25 percent of spindles in the cotton and woolensector respectively, they stand committed to 'oe solu to the private sectoras soon as possible. The cotton sector is entirely resource-based exceptfor imported dyes and chemicals accounting for about 6 percent of itsmaterials usage. The woolen sector is based on imported wool becauseIranian wool is unsuitable.

11.86 The performance of the industry on tne whole is satisractory.It fulfills the present requirements of the people, which are largely forthe coarser fabrics. Costs and prices of the common cotton/blend fabrics

(Chit an,d Chelvar) are comparable internationally. Effective protectionon cotton clot:h ranges; from 7 percent to 20 percent, and is 16 percent onwoolen.

11.87 Nevertheless, the sheltered environment in which the industrygrew up has fostered some weaknesses. Large, independent, non-specializedunits, etach with its own finishing capacity, would do well with rational-ization. A domestic umarket without recourse to international suppliesleaves rio incentive to improve quality or efficiency, particularly withthe present low wage level. A future rise in wage rates could render theindustry' vulnerable.

11.88 With the virtual completion of the import substitution program,the government has re-oriented the approach for the seventies. The newpolicies are intended to deepen the industrial structure, by extendingit to intermediate and capital goods. New units must be of economic sizeand efficient by international standards, and provide for greater domesticresource! usage.

11.89 Industrial licensing continues as the chief policy tool, withnew emphasis on: a minimum of 35 percent domestic value added or a minimumdomestic resource use of 65 percent; and a maximum protection of 35 percent:.The cotton textile industry fulfills all these criteria.

11.90 We have projected large textile expansion requirements from 1971to 1980, stressing the need for supply to keep ahead of demand. It isdoubted whether the licensing system on its own would lead to the desiredbalance. In any case, no industrial licensing system can by itself general:ethe required new investment. We have planned to install new units whichwould need to be more efficient than existing ones. The licensing systemof its cwn would fail to select the potentially most efficient anplicants.

11.91 The means fe,r stimulating and retaining efficiency in the yearsahead will constitute the most imporltant problem in the textile industry.Towards this end, it is recommended that a greater measure of competitionis introduced, either by exempting the textile industry from industriallicensing or allowing it to be licensed more freely. The financial in-stitutiens which would extend credit, the autlhorities who would licensethe imnrort of nlant. and above all thie qupvsted Textile Industrv Reorgani--zation Corporation may then more competently select and support the mosteffirirnt projects.

11.92 Addi=tionallyv the nresent: nhvftical bnn on cotton textile jmnnorts

should be withdrawn (as enabled by the new 1971/72 import policy) and theinclustry7 nrotoeted only by an import t2riff This miaht commence at the

present level of 30 percent, but be gradually reduced to around 15 percenton cotton and 10 nprsenr tn DWoolen fabrics A policy study coulld help

to determine a schedule for dismantling quantitative restriction on imports,

- 196 -

and levels of concurrent and declining duties. Only controlled importscan satisfy the present excess demand, while new capacity is Deing DUiit.

The iTmport of coarse fabrics would be particularly effective. This wouldput pressure on the iargest sector of tilis industry, and as these fabricsare presently produced quite efficiently, the required tariff would bereasonably low. The lower income groups who consume these fabrics do notlhave the means or the urge (ascribed to the wealthier people) to payexorbitant prices merely to consume imported articies. By this token, tnetariff on finer fabrics consumed by the wealthy, might require to be higherto neutralize not only costs, but also consumer preferences. An exciseduty on the production of these finer fabrics, would help not only toreduce actual protection enjoyed by the producers, but also to limit con-sumption and provide revenue to the government.

11.93 Controlled imports witlh an appropriate level of tariffs, wouldintroduce enough competition to facilitate the proposed Textile IndustryReorganization Corporation's task of inducing and directing rationalizationof the industry, and raising plant level efficiency. The growing marketand the prospect of adequate returns for efficient enterprises, shouldattract sufficient new units with internationally comparable standards, inthe years to come.

- 197 - ANNEX 1

Chanter XT

TRAN

NFt.J GREV MTT.T. - CHIT

40" AO x~ 'A 7624's warp 24's filling

500 looms

Total cost Frir xh$$

I -, A 54 700 8nm 2i at 660 rin p4ner a am 4 A/110 A.Ofl

R..4 1A4,-,, 1~ R man ,n m e Afl ,n 4 ,1a-- ^'F '1-,A S- oM. at 6.0 - v a^ , -

per sq.m. 1,104,000 110,000

Machinery 4,035,000 4,035,000Tmport duty at 57 201,750

r-k-t-4.- capit - 1,1'5,000, . - - - , -,-__ __ __ _____ __ _

Tolal Javes-mLent US$y C',6907,350I 4,'45,000

Total ri.al s (m4 .1.ilon' 1831

at 8, fiin-

Meters per week (144 hours) 310,000

- 0(10/w . er, - , -- --dL OU/ot0 eiic±eicllY

Meters per week (144 hours) 290,000Meters3 per year (50 weeks) 14,500,000

at 757O efficiencyMeterS per week 271,000Meters per year 13,550,000

- 198 - ANNEX 2

Chapter XI

IRAN

NEW GREY MILL - CIIIT

500 looms

Construction: 40" 60 x 58 3.76Yarns: 24's warp 2 4's fillingNumber of looms: 500Type looin: 40" x 2Loom sneed 192

Efficiency 85%Meters ner loom hour: 4.28

llours per week: 144 (3 shifts x 8 hours/shift x 6 days)Meters per weel: 310,000

Draft Program

CaTrd sllver (grains/yard) 55Breaker drawing sliver (grains/yard) 55Finisher drawing sliver (narains/,yard) '; 5514" x 7" slubber roving (hank roving) .80illrn g yr n sing cre1 o r lo2

Filling yarn (single creel) 24

- ]99

ANNEX 3

4A" 60 x 58 3. 76 Chit

IRAN - NE'W GREY MILL

OFFICE AND SERVICE AREA

FrI Pa I I tD I

- I raCarding0o I I I!. L.. -

0*

I F KF5 Opening &CL Weaving I I Spinning I CL BWevn Blending

I v I I: I ___I

rnI o~ I Ki t00

F I r I CottonI I I I StorageY I I I

- - - -_-_ I I -_ I I .-

WeeklLy Meters (144 hours,) = 310, 000

Weekly Kilos Df Cloth (144 hours) = 38, 247

Approximate Total Mfg. Area 460 x 320 = 147, 200 sq. ft.

- 200 -

XII. THE MACRO-ECONOMIC FRAMEWORK

A. National Income

Gross National Product

12.1 Iran is a case in economic development where a relatively highrate of growth has been combined with remarkable price stability. WhileIran's development strategy and policies are not dissimilar to those inmany other developing countries passing through comparable phases of growth,its achievements and performance contrast sharply with those of the latter.This does not necessarily imply that the implementation of the developmentprogram has been perfect or near perfect, nor does it suggest that a highdegree of efficiency in proiect management has been always achieved. Inpoint of fact, there were all the familiar constraints on growth in Iran -lack of technical skills, narrowness of market both for goods and capital,and a lack of adequate technology. Iran, however, was able to overcomethese disadvantages mainly because of two factors. Firstly, it effected afar-reaching land reform program and thus increased agricultural productiv-ity. Besides, the implicit radicalism in the land reform program unleasedthe main springs of growth which, in course of time, pervaded the entireeconomy. Secondly, Iran was free from the familiar vicious circle stem-ming from a shortage of foreign exchange. Its oil production and itsexports, helped it to sustain modernization of its economy which requiredever-growing imports, despite the widening area of import substitution.The snin-off effects of these two malor advantages annear to have overcomethe debilitating impact of some of the agricultural and managerial defi-cienct~ es

12.2 The national income da.tan reveatl the nrncres of the Tranian

economy. The compound ratc of growth of the gross national product atconstant rrlces (1959/60) has been around 8i 5 nercent hptwppn 1962/63 and

1968/69, the GNP in 1969/70 standing at 583 billion rials, the rate ofgrowt,h in the year being 11.4 percent. The rate nf increase of GNP at

current prices has barely deviated from GNP at constant prices, which isan evidence of relative -rice stability. Despite to r-ate nf popruation

growth of 3 percent per annum, real per capita income has increased on anaverage by over 6 percent during the same period. This is, by any stand-

ard, a very impressive performance, but more so when seen in relation tomany of the other. develoing4 c--ries.

- 201 -

Tahle 12.1: u('iP AND i'TS WMP0NENTS AT CONSTTAN' (1%9/6u) PtiLCES

(billion ri.als)

Pear G of^t

I '*I jII

O ' nff 1 /H<' 1Y I. II IA

. .-L. 0.'e J - J.CI 14 -. J .

prorJuctive factors

"hares of' Gonsortiwn (48.2) (54I .) o .3 1(.0 10.1 I l.bothler o:L companies

Industries and Mines, 10. Li

Const., ut,ilities /-.2 L0.IJ £. L9. U.U

- _ - -Lr.'!_ (- I.\ (/Ai I\/C 1 LI eu ,, *,-, .I I ULi L,.ry N. I,mi1ne I5 1.4) A''.-)J lOJ. I Al L.' 11. f ]u. J

Conswt.rn)c t,ivr (2l_.*) (23.5) 5.1 ;.:. )4.3 -h.2 3.wpor,er and power- (J1.-) (13.-?) 1.7 2II 2.6 I5. 1

')e -r2.C/ ices ,'_.C 'u 1 '. II 1u. I !.

Tr. .nspo0 r t,a t,ion &fCormurlicat:iOns (29.3) (30.3J) 6.9 6.1 5.6 3.6

inIK. Lriv cLes T1U 1 i:1i10r;0 ,-t )J n II* 6) ) * o 3.9 .L:Y*04(lorrirme ro (I4.13) (52 .-2) 1).13 :1.3 9.7 ) .7)uwri rShi.p o( dwel ing keU * U.2 .9 5.7 'P'-tilic services (53.7) (62.0) 1(.3 1.1.1 11.5 1.5Privaite services (25.0) (29.6) Il.8 5.2 5.5 18.L

St-atI~i.sca:i errorsm -1.9J 5.6v 0.7 - .it L.1

- - F 'IL I 6Gr uswi (j()pil'13tJU1 p2 lut ''ILj . /) ',U U . L)

NetL rae ,i, r- irm; ome: -.3 romriurr.oi ..61 . -tP: .) -9.6 -12.8 -12.() 5. 3

otl2:j,r'e rfl' 005rl3CC!'t'51 hil amlid.,Ž ., . , CC,S.,I), ..

I) III 'Il 0 .0 r 'Iflf)t.LJt .j-C.0i C') . 6¢ -n *i 4 -C) . ) -- i' .J .0t -LUJ..I

0)hor't j -J).!; - jC)* 3 " I . ! -i -1.'J

ii-, ! .1 )'(.( t I,.S|1|1 l @ ,i

- 202 -

12.3 The factors accounting for the steady and high rate of growthare to be sought Ln the equally rapid rateW of growth in investment as alsoenchanced productivity of that InvestLmenit. The gross domestic capitalformation wlhich was around 49.3 billion rials in 1962/63 more than doubledto 125 billion rials in 1968/69. This sharp step-up in investment expend-iture raised its ratio to GNP from 15.3 Dercent in 1%h2/63 to 22.3 nersentin 1968/69. This level of investment was impressive even compared to thedeveloned world- and in no small measure- snarkle( off a social and econom Irtransformation of thie Iranian economy.

12.4 In comparison with investment, domestic savings were at 59.6billion rials in 1962/63 slhowitin an excess over domestic investment ofabout 10 billion rials. The position was reversed liowever in subsequentyears so that in 1968/69 domesti. Investment at 125 billion rials outsetrppeddomestic savings by 11 billion rials. The gap between domestic investmentand savings was filled by the inflow of forelign capital_

12.5 The investment performance was also remarkable for another reason,namely the distribution of gross domestic investment between the publicand Drivate sector-s with irowin' ennlhIasls hetng' plared on netw invesUPtmPntR

in the public sector wlhich accounted for about 50 percent of total invest-ment in the laqt h rn 7 vyars. Morrp I innrt-rntlu thn MisqrPnnnev hhrpt n

the public sector investment and its savings widened further so that thegovernment's draft on thle savinvs In thei privrate sector was substantialin the last six years. Savings through the budget in current prices ex-nanded from 11.2 hillinn rials in 1963/6 4 to 27=7 billion rials in 196S/66

but thereafter remained almost stationary. In the result, the public sec-tor's draft on nrl$ate p e,ct-r savings lIrcreased by almostt torp 1imes,

apart from the larger reliance on foreign borrowing and the credit fromthe bqanknng systeim - which IQs but an a~spect of channellinog private sectorsavings to the government.

12.6 The efficiency of investment wlhLch itself was growing apace wasre-flected In the lower capital--utput ratio whlch av.raged about 2.6, whichis a feature againi singling out Iran as a case apart from the general runof developi- 0 countries. Tfl.e smaller slze of the capltall cefficient ls

due partly to an initial levrel of sizeable underutilization of capacity,bu e , . >Xar;...A .,,,,el C1- + x ...... .. ....... A ,1 AA As 4.- -t-_-V ki ) .3 S>. r .7 u a cons eq Wt.; 1. t t. K LL 1 01.- .1 3 1 il D k1 L . I L C Lt VO *i . 1- v WCO LUICLI *. 0

petroleumi and agriculture, where enhanced output could flow without direct-lly corresponding increase in investm;eiat - a t1ru'ly techinolog5ical factor.

Se..toral G"rowth R'atesO. -7 kilgh as th-e aggregate rate of gro-wthi of the economy 'as been,tiC I. LUI t~A I. WL Li Ixa L I i

sectoral rates of growtlh were also impressive. The net value added ininuustry has almost doubled i.roiuii c9.) bLIUlion Lials at co8istant (19 I59/J6VJ

prices in 1962/63 to 57.4 billion rials in 1968/69; so have incomes generatedin petroleun and construction. The ratet of growth of agriculture was alsorapid but lower thaln in Intlustry, cofTmiunications and transport, and con-

- 203 -

struction. Naturally, the share of manufactures and other infrastructuraltypes of industry increased at the cost of agriculture, private services,and wholesale and retail trade. This is in conformity with the pattern ofindustrialization experienced in countries both under-developed and dev-eloping. Relative sectoral growths over a period are shown in the follow-ing table:

Table 12.2: RELATIVE SECTORAL GROWTHISAT CONSTANT (1959/60) PRICES

(percentage)

1962/63 4thto Development

1967/68 1969/70 Plan 1968-73

Agriculture 1.2 0.4 1.0Industry and mines 1.1 1.2 1.4Oil 3.0 4.4 3.9Construction 0.6 -0.2 0.5Water and power 0-4 0-4 0.3Services 2.2 5.2 2.3

GNP 8.5 11.4 9.4

scirrt p B Rnnk Mnrkaz4

12.8 The population of Iran is estimated to be about 28 million in1969 and has been growing at an annual rate of 3 percent. The birth rateis placed at 50 per thous and and the death rate at 20 per tho-sand. Judg-ing these trends in the perspective of gradual development of health andsanitary cond4tions as a result of deliberate and energetic governmentpolicies over the last few years, and a sustained rate of growth of theornomy, tho npopul ation gr o a tnh,tI 4 F Onytliing c 14 likey. t o abe en higher

in future, in which case, the growth of per capita income would be corres--ondingly,, smller. It is he-wnve-.r hcartenintg to c..ome across evidence of

the awareness of this problem on the part of the authorities, wlho have beenplanning measures d4rected at bringing dowr the birth rate. The economiccosts involved in a rise in population are quite high as reflected ingro,wring dependency burden and the increased Aensity of. population - about140 per square kilometer of available land. The Family Planning Programfirst inauguraI -in 1967, tough .,oAest in financilal ter,s i8 ha vi-ng

considerable impact. It is being implemented through the existing networkof health services, an- the "revolutionary corps" - leaLth corps an t14-

erary corps, made up of educated conscripts perfoming what is equivalentt-o their ,,4litary serviLce, as well as the recently established women's'.* L.I. I. .~LL.LJ.LOL D LLVL ~ ~A. LLi~ et L.) t LU .L~LLLU W IL I

corps. Though in terms of family planning programs and policies the impacton populat.ion Lrowt h may appear 'Lo ble l4M.I.L , what Leeds Lo be borne in

- 204 -

mind in any assessment of the future growth of population is the earnest-ness and vigor which the iranian autnorities are displaying in its admin-istration.

Employment

12.9 Employment prospects have been improving in step witlh industrialdevelopment. There has been not only an expansion in aggregate employmentbut also a change in the desired direction in thle pattern of employment.During the Third 5-Year Plan period, i.e. 1963 to 1968, there was a per-ceptibly rapid growth in employment in indtustry and services with an asso-ciated shift of labor from tile rural to urban areas. With the growth inemployment, wages also rose, hut in view of the fact that the productivityof labor hlad in general been far in excess of wage increments, pressureon prices was not very intense. Value added in constant prices for agri-culture increased by about 32 percent during the Third Plan, whereas em-ployment declined in the same period. Thiis implied a rise in labor produc-tivity in that sector of about 6 percent. On the same basis labor produc-tivity in industry and agriculture went up by about 12 percent per annum,reflecting the fact that new methods of production are being graduallyadopted in the manufacturing sector.

12.10 It is evident from the following table that employment in allthe sectors of the Iranian economy increased from 6.9 million persons in1962/63 to 7.9 mnillion in 1968/69. The proportion of active populationto the total population hias declined by 2 percent. This shiows thatpressures on employment opportunities will be accentuated in years to comeunless the rate of investment in the economy is maintained at a highlevel. Besides, there are many bottlenecks in regard to trained andskilled manpower. As is borne out by the surveys of the Ministry ofEconomy, for every engineer in industry there were in 1962/63, 4 techni-cians, 12 skilled workers and 42 unskilled workers, while in 1968/69 forevery engineer there were 4 technicians, 13 skilled workers and 62 un-skilled workers.

Table 12.3: ACTIVE POPULATION BY TIIE MAINCROUPS OF ECONOMIC ACTIVITY

(in thousand persons)

1962/63 1963/64 1964/65 1965/66 1966/67 1967/68 1968/69

Agriculture 3,261 3,242 3,221 3,197 3,168 3,141 3,106Construction 1,520 1,589 1,660 1,735 1,813 1,891 1,987Oil 44 45 45 45 44 46 47Services 1,494 1,546 1,597 1,652 1,706 1,762 1,814Unemplovment 600 651 704 759 818 874 930

Total 6;919 7,073 7;227 7,388 7,549 7,714 7,884

Source: Bank Markazi

- LUJ

Wages

12.11 In the absence of comprehensive data on wage rates in Iran, nodefinitive conclusions on the subject can be reached, but there are scat-tered bits of informal'ion which help us to obtain a broad idea of the wagesituation. The minimum wage in 1969 was around 60 rials per day. Wagesfor unskilled workers in the urban area during the current year are inthe neighborhood of 100 rials per day. The general level of wages for theindustrial workers as a whole is estimated to be increasing at a rate ofabout 9 percent in the 2-year period 1967 to 1969. The wage rate of skilledworkers is rising even faster indicating that the bottleneck in regard tothe supply of skilled personnel, which is serious enough at present, islikely to be accentuated in future.

B. Capital

Industrial Financing

12.12 The capital market in Iran is in a very rudimentary stage ofdevelopment. On private accounts, capital is mobilized mainly through thefinancial institutions and only to a very limited extent tlhrough the StockExchange. Issued financial assets, such as shares or bonds, are on a res-tricted scale and personal holdings of these assets are meager. Such issueactivity as exists is confined to the financial institutions and the gov-ernment. Besides, the government has generated, particularly during recentyears, a large amount of savings in its current account which mostly havegone to finance goverrnment investments.

12.13 The main source of long-term industrial finance is the fourspecialized credit institutions, of which one is privately owned while theremaining three belong to the governTnent. In the former category is theIndustrial and Mining Development Bank of Iran (IMDBI) in which shares areheld by Iranian nationals, as well as foreign institutions. In the lattercategory fall the Industrial Credit Bank, the Agricultural Bank and theMortgage Bank. There has been a new institution called the AgriculturalDevelopment Fund set ulp in August 1968, which is meant to attend to theimplementation of long-term agricultural and agro-industrial programsthrough provision of long-term loans or by equity participation. In manyways it is the counterpart in the agricultural sector of what the IMDBI isin the industrial sector. The flow of long-term finance to the privatesector also takes place through the commercial banking system whose primaryfunction is to lend short. However, some short-term credits, through roll:ingover, assume the character of medium- and long-term loans, quite apart fromthe limited term credit provided by the commercial banks on a formal basisas investment and equity share participation in companies. For want ofrelevant statistics regarding the breakdown of commercial bank credit betweenshort-term and long-term, it is not possible to indicate the precise mag-nitude involved.

- 206 -

Table 12.4: CONSOLIDATEID BALANCE ,SHEETS OF SPECIALIZED BANKS

(in bUilions of rials)

March March Sept. March Sept.1963 1964 1965 1966- 1967 1968 1969

Cash and otlherliquid assets 1.2 1.9 1.2 2.1 1.2 1.5 1.2 1.3 1.7

Claims on publicsector 1.2 1.8 2.4 3.6 1.5 1.7 2.7 3.3 3.4

Claims on privatesector 12.5 15.4 20.0 24.3 28.5 32.9 34.5 37.7 38.8

Assets = Liabil-ities 14.9 19.1 23.6 30.0 31.2 36.1 38.4 42.3 43.9

Private sectordeposits 1.5 2.5 3.4 4.7 5.1 6.1 6.4 6.8 6.1

Public sectordenosits 3.7 5.3 4.6 6.8 5.2 5.1 5.5 5.9 7.9

hphi to Central

Bank 1.2 1.8 3.3 0.9 2.0 1.1 2.4 3.2 3.4

Foreign liabil-ities 0.2 0.2 0.3 0.5 1.1 2.0 2.3 2.6 3.0

Other items (net) -0.4 -0.3 -0.9 -0.5 -0.4 1.2 0.7 2.2 1.2

Capital 8.7 6 12.9 16.6 18. 20. 6r 91.1 91.6 22.3

1214 From T"abe 12.A show4ng the consolidated balance sheet of special=

ized banks, excluding the Agricultural Development Fund, it is evident thatthMe m,ain sources of finance are com.prised of caitlfud, uli-eco

LLC LLLI .. U l.C 42 2 S~LOI'..C OkC tA1i1

itOt Wsj Laps. CLOS. L UtLAaS , P UU .L.L.. O t L'.J

deposits and borrowings from the Central Bank. Capital funds are by andlarge contributed by the governLmenIt through budgetarUy allocalilon except or

Iranian private and foreign equity participation in the IMDBI. Privatesector ueposits, which amountedU to L1.5J bi.J.LiJon riLaLs iLn 1963, increased to

6.8 billion rials in 1968. Yet they form a small proportion of total re-sources of th'e speciLa'lized 'inst'LtutiLons. WhteJ exanio tha - a - takensor~ !L1~~pLd.±U±L~LLLUL~*W1L1dLI-VUL tC2I.lbL~ULZ LlIaL L16.- L4&WII

place in private deposits has been due to a growth in deposits held byrural cooperatives with Uanks anU iIi L[hose Uo nuIIi1V1uai aUmIers WiLLL Llle

Agricultural Bank. Foreign resources have assumed some importance only inthe last two or three years. Tne resource pattern throws into bold reiierthe fact that mobilization of resources by the specialized institutions isvery insufficient, and Lhat they act more as a conduit for channelling

either 1:he government's funds and Central Bank's credits to industries,or toreiLgn funds. This leaves a very important gap in the capital marketas it is constituted, and unless this is remedied it would leave more seriousproblems in regard to financing industry when the latter expands at a fasterrate in the future.

12.15 The above description relates mainly to institutional credit forthe private sector industries. The industries in the public sector, suchas oil, gas, power, etc., obtain development funds from the Plan Organiza-tion. The reLevant magnitudes during the 4th Plan Period are:

Billion Rials

Productive Sector 276.8

Infrastructure Sector 138.9

Social Services and Welfare 64.3

480.0

Government Bond Market:

12.16 As a part of the policy of the government to provide a capitalmarket the government issued for the first time in 1963/64 short-termnegotiable Treasury bills. Originally a series of bills were denominatedin rials 10,000 units and of maturity of 3, 6 and 12 months, carrying tax-free int:erest of 6 percent per annum. As of September 20, 1969 outstand-ing Treasury bills amounted to 17.1 billion rials. A major part of theTreasury, bills is helcd by the non-bank public which lends support to thebelief that a capital market organization is slowly Raining ground in Iran.

12.17 In 1967/68 the government started issuing long-term bonds calleddefense and development bonds, carrying tax-free interest of 6 percent. Atotal of 9 billion rials of these bonds was sold up to September 21, 1969.The major holder of these bonds however is the Central Bank, showing thata wide market for these bonds does not yet exist. The Comnercial Banks'response: to the issue of bonds was weak in the beginning, but grew strongersince November 1968 when the Central Bank permitted the Commercial Banksto hold defense and development bonds as a part of legal reserve require-ments. On the whole the market for gzovermnent bonds lhas remained highlyrestricted.

Teheran Stock Exchange

12.18 The Teheran Stock Exchange was set up under a special law inMay 1966. Responsibility for management of the Exchange (Bourse) restswith four separate bodies, namely tihe Council of the Bourse, the Accept-ance Coamittee, the Dealers Organization andI the Arbitration Committee.Bank Markazi Iran (the Central Bank) plays an important role in the Ex-

-0 nR-

chlange since the governor and tihe deputy-governor respectively head two ofthe most important committees, the Council of thle Biourse and the AcceptanceCommittee. The Stock Exclhange began operating, in February 1968.

12.19 As at present, there are 9 comnpanies whose shares are listed inthe Stock Exchange and 2 government bonds, namiely Treasury bonds at 6 per-cent (bearer) and land reforn payment orders carrying interest at 6 per-cent. A latest issue of governzlient-owned bonds for one year carryinginterest at 8-1/4 percent, and for 2 years carrying interest at 9 percent,has not yet commenced to be dealt in the Stock Exchange. Total tradingin the Stock Exchange in the first full year amounted to 124 million rials(3 listed companies and 2 governnment bonds) and in thAe second full year to133 million rials. Total business from March 21, 1970 to September 21,1970 amounted to 72 million rials, showing a very slow rate of growth inthe volume of business transacted. Sixteen banks and 2 individuals pres-ently deal in the Stock Exchange against customers' orders. The chieflisting requirement is tlhe submission by a company of 3 years' balancesheets duly audited. Thiis requirement however is waived in the cases ofcompanies whose shares have been underwritten by approved commercial andfinancial institutions.

12.20 The 9 companies presently listed are: IMDBI, Pars Oil Company,Teheran Cement Company, Shomal Cement Company, Iranians' Bank, Bank ofIran and Middle East, Iran Rolling Mill, Khermanshah Sugar Company andNeishabhr Sugar Comnany=

12.21 T.here are hnardly 20 comnannie in Tran tnc1nv with mnrp than 100shareholders and more than 100 million rials of share capital. The mostimpnrt-ant- d-fit4.-nry thp cnmnlpto nh<nr nf ArrAnopmpntq fnr makina A

public issue of capital by any company. The financing of private companiesis entirely arraned bv individuals on1 r fam11ies who hapnen fn be tho spon-

sors and who may procure a large part of their funds from the commercialbanks.

Corporate Laws

12.22 The Iranian Commercial Code (last a-arded in March, 1969) laysdown the organization and operation of all business entities in Iran.There are seCven forms of orgar.lzation.

(i)r Joint Stoclk Company: ThIese can be elt!:er public or priv_ate% U_ ULU I. a L.'L 1..LLaLy. A 'LLO .a, LC A.. L I. pui..L. L . pA.4v

and must comprise more than one shareholder, which prevents.Loreign comLpan)ies f rom openi.ng wh oLly-owneud subsldlary com-panies in Iran, unless they are content to open mere "branches".

, ~- - __ - - - - l- t - -3 X -.- .: - -7 : - v - - 1- - __- -1 . -L -1-CapiLtadl I1n Joint stock comUIIIpanLIesb iS UdlVid-Ued LlLU CLIGL xCZ WLI.L%-11

are bearer or registered. A public joint stock company needsto have a mifiimum subscribed capital of 5 million rLals, and aprivate joillt company, 1 million rails.

- 2no -

(ii) Limited Partnership: This consists of two or more partnerswhere thle iaulLy oL eachii 'Ls LiLmLteU to the amLouit lyiaL g aany time in his account with the firm.

(iii) General Partnership: This is an organization formed by twoor more persons who assumed joint and several responsibilityfor the liabilities of the organization, even in excess oftheir capital contributions. The name of the firm must includeat least one of the partners' names.

(iv) Partially limited partnership: This is a type of firm whichcomprises one or more general partners and one or more limitedpartners. The words "limited partnership" and the name of atleast one of the general partners must appear in the name otthe firm. Management vests with the general partners withunlimited liability.

(v) Joint Stock Partnership: This is a mixture between a jointstock company and a partnership, and includes general as wellas limited partners. The capital contributed by limitedpartners is issued as shares, and management rests with thegeneral partners.

(vi) Proportional limited partnership: The difference between thisand the second form of organization lies in the fact thatpartners contribute "capital", and the liability of each islimited to his contribution.

(vii) Co-operative Society: This is usually a joint stock company andis formed either by producers or consumers for the productionor consumption of goods. Profits and losses are distributedamongst members in proportion to their production or purchases.

Taxation

12.23 It is believed that the liberal incentives offered to foreigninvestors and new enterprises in both direct and indirect taxation, helpto reduce its incidence on cost of production and overall profitabilityof an enterprise to negligible proportions. This is further reinforcedby the absence of production taxes, sales taxes and similar indirectlevies. As a result, it is claimed that net company profits after taxesoften reach as much as 25-30 percent of capital employed.

12.24 The basis of the Iranian tax system is the Direct Taxes Act 1967wlhich enables the following taxes to be imposed:

(i) Tax on annual income.

(ii) Tax on capital gains.

(iii) Tax on inherited wealti.

(iv) Stamp duty.

(v) Tax on unused lands withlin city limits.

For the purposes of this Act, inconmes include wages and salaries, agricul-tural income, property incorme, interest, casual income, professional in-come, and corporate income.

12.25 The relative incidence of corporate incorne tax as compared toall direct taxes is seen from tlhe following table:

Table 12.5: RELATIVE INCIDENCE OF CORPORATE INCOME TAX

1968/69 1969/70 1970/71(Actual) (Est.) (Est.)

Total Direct Taxes 100 100 100

Direct Corporate Taxation 15.5 18.5 20

The approved Iranian budget for 1970/71 slhows the following incomes:

Table 12.6: IRANIAN BUDGET 1970/71: INCOTES

Percent ('000) Rials

18 Direct Taxes 25,649,835

35 Indirect Taxes 49,427,770

20 Public Sector Enterprises 28,054,874

6 Government Services 8,226,607

21 Other Sources 29,581,105

100 140,940,191

12.26 By compariuig the above two tables it will be seen that corporatetaxation represents only 3.6 percent of total government revenues on currentaccount. It can also be concluded that of all taxes paid by companies, in-come tax on profits is a relatively minor figure.

12.27 Cornnrations are taxed on gross nrofirA 1Ps npermiiblp Pxnpnsesand deductions as follows:

(i) Wholly owneci government companies are t:xed according to theGeneral Income Tax Schedule reproduced below. Partially ownedgovernment companies are taxed pro-rata by the General Scheduleand the rest: in terms of (iii) below.

(ii) Foreign individuals and concerns are taxed by the GeneralSchedule.

(iii) All other companies pay a basic 10 percent corporate tax,and in addition: Iranian joiint stock or mixed partnershipcompanies are assessed to a 15 percent tax on dividend todomestic shareholders. A flat rate of 25 percent is appliedto tndividedl profits and dividends to bearer shares, unlessthis amount is in excess of 100 million rials, in which casethe excess is taxed at 50 percent. If a company's capitalis divided exclusively into registered shares, held by noless than 2Cl0 shareholders none of whom hold more than 10 per-cent: of the equity (i.e. thie company is "widely held") thecompany is exempt from the basic 10 percent corporate incometax. In addlition, 15 percent of taxable profit is exempt ifa company's shares are quoted on the Tehran Stock Exchange.These listed shares are also exempt from capital gains taxwhen sold.

Table 12.7: GENERAL INCOME TAX SCHEDULE

Annual Taxable Income Tax Rate Taxes as(rials) -() cumulative %

Up to 400,000 15 15Excess to 600,000 18 16

800,000 20 171,000.000 22 182,000,000 24 214,000,000 26 277,000,000 28 27.5

10.000.000 30 2815,000,000 35 30.420,000,000 40 32.930,000,000 45 36.950,000,000 50 42.1

Over 50,000,000 55

12.28 Allowable deductions include 15 percent of salaries paid forbenefits to accrue in the future (insurance. nensicon) ryvalties (l1imn-suim

paynments are spread ovet some years), donations (up to 30 percent of tax-able income?, research and develvpnlent cirosts, and bad {d provisions.

- 212 -

12.29 Depreciation is calculated in terms of a Schedule of DepreciationU L<1Wn Up I))y Lt1h i"lLIIst L yV oi 1Finatnc laying I do1wn t1.1ie ljimLt over whihLll

straighit-line depreciation is to be calculated, or percentage rates to beappie une the minrishing balance m,eth'od'. Undter bothI sjys5temseprcia

tion is to be calculated on original cost. Preliminary expenses can beanortlizeu over tLiree years.

1I2 Important inceLntives ar incorporateu iII Lne Lax laW tO prov.LUdfor the developirient of the economy in desired directions. Industries inthe border regions are granLed IJOu percenL tax exem1tlions for 5, 8 or 1uyears depending on location. Industries in other areas receive a 5-yearexemption. Hiowever, indusLries within 120 km. or Tehiran receive no exempt-ion, and those within 50 kmn of Esfahan receive only 50 percent exemptionfor 5 years. income ploughed back for plant expansion is tax-exempt irthe project is larger than 5 percent of the plant's existing fixed assets.Income derived from the export of Iranian products approved by the Minis-tries of Finance and Economy are exempt from tax for 5 years. Incomeearned through cultivation of agricultural products aeemed necessary roreconomic development, is exempt from tax for 10 years. Income from irri-gation projects is also exempt from tax for 10 years following commence-ment of operations.

12.31 The mcre important indirect taxes are those on oil products,those on alcoholic and non-alcoholic beverages, customs duty, and stampduty.

12.32 Iran presently has only one double taxation agreement, that withthe Federal Republic of Germany. The treaty outlines how the principlesof avoidance of double taxation are to apply to residents of the two sig-natory countries. Residents in Iran will be entitled to deduct any taxespaid in Germany from Iranian tax except when the income would be exempt inIran. Generally speaking, profits arising from business operations aretaxable only in the country in which the "permanent establishment" ofthe organization concerned is located.

Foreign Investment

12.33 Iran welcomes foreign private participation in its industrialdevelopment within a general framework calculated to be conducive to itseconomic welfare. In December 1966, Pritne Minister iloveyda expressedthe government's attitude in the following statement made before the Par-liainent: "We are in favor of securing credits within the possibilitiesof our future foreign exchange earnings. Ilowever, we do not approve ofany and every foreign investment and --- insist on a minimum of 51 percentIranian investment in the (joint) companies formed." In fact, however,the percentage of foreign participation is a matter for negotiation wlththe Iranian government, and depends largely on the contribution of theproject to the economy. Managerial control is granted to foreigners whenthe nature of the operation justifies this.

12.34 The rights and obligations of private foreign investors areenshrined in the Law for the Attraction and Protection of Foreign Inivest-ments of 1955 ("Law"). The general objective of the Law is to provideattractive inducenments to foreign investors, and encourage their confi-dence by granting them the same legal protection that is enjoyed bydomestic companies. The Law therefore guarantees tax treatment, andprotection of property and fixed assets equal to that enjoyed by Iranians.The Law provides for remittance of profits or dividends, and in the eventof closing down, repatriation of capital. In the unlikely event of nation-alization full compensation is guaranteed.

12.35 Private foreigni loans granted to Iranian companies are alsoprotected by the Law. These foreign loans are aLpproved providing:

(i) The duration is at least 5 years.

(ii) The interest is not more than 6 percent.

(iii) The purpose of the loan is specified.

Government BudgeLing

Tablel2.8: SUMMARY OF T'IE ORDINARY AND DEVELOPMENTBUDGET OF IRAN : 1970-71

(Million Rials)

RECEIPTS

A. Ordinary revenue

1. General Revenue 113,3992=- Trans t'f Yr frnm P1 an Flnds 13,395.3. Special Revenues 1h146 140, 940

B. Plan Receipts 130,905

271, 84t5

PAYMENTS

General- Admin!qt.r-'tA c 28,2 95

National Defence 58,719Social Affairs 5,454Economic Affairs 92, 784Mi As ellane ou0s 3 ,6 71 1,C

~ Jai5~. I5 ..' -.. I- I L, 0L4,)

1 l -I e_ 0.0 LOr'mTFfA MLT~ OfQ0nTT0rLC'1~ vL' nV 1 MT 'f4V-TTO TJIdU1 I- . 2 L)L " J1,A11ilThij J UI UI, \Il ±IL1I IL] U tIll

DEVELOPMENT PLAN IN 1970-1971

(Million Rials)

RECEIPTS

Oil Revenue 75,867Gas and Petrochemical Revenue 960Miscellaneous Revenues 1,333Foreign Loans 33,440Internal Loans:Sale of Bonds 9,000Bank Markazi. Credits 23,700 32,700 144,300

PAYMENTS

Development Projects 113,000Non-development 31,300 144-,300

- 215 -

XIII. STRATEGY AND PULICIES

A. National Development Plans

13.1 The dynamic process of development that one witnesses in Iran to-day had its beginning in around 1926. It was then that Reza Shah the Greatlaid the foundations fo industrialization by using public funds to set upa few cement and brick plants, iron foundries, textile mills and sugar re--fineries; together with modest infrastructure investments in railways, roadsand electric power. The strategy was that of import substitution in fielclswhere economies of scale are not very significant, the production process issimple, and raw materials are available domestically. Therefore, these ini-dustries. while catering to the home market, were also to a very large ext:entresource-based.

13.2 Progress up to and through the War was halting. In 1948 Iran'sfirst attempt at co-ordinated economic planning and development commencedwith the First Seven Year Plan, and the setting up of the Plan Organization.About 21.2 billion rials (about $283 million) were spent on small-scale in-dustriaL and infrastructural projects. The Second Seven Year Plan inaugu-rated in 1955 benefited from the preceding oil nationalization, to allowabout 150 billion rials ($2 billion) to be spent by the public sector pri-marily on economic infrastructure proiects such as: dams, irrigation systems,roads, power plants and telecommunications. The Third Plan (September 21,1962 to Mareh 20; 1968') dspnite heginning in the midst of a recession, suc-ceeded iin increasing total development expenditure to 228 billion rials($3 hillinn), the bhil nf whirh was shnred hbt-ween rnmnninirntions and tlep-communications (26.6 percent), agriculture and irrigation (25.5 percent),nnpowr ndrA fueil (12.6 p,ercent), nd n inetiq t-rv and minina (7. nprcePnt)=During this period planning was made more broad-based and decentralized. AHi-h Economic Counc 1 (MairreeAd byr the Sha.h) and A High PlannIng Councll(Chaired by the Prime Minister) were set up, and some authority for projeci:implemeInrtatinn was given to the provinces and tnwnships.

13.3 The Fourth Development Plan (March 21, t6qR to Mareh ?0- 1Q7'Aforms an important landmark in Iran's development. Apart from its ambitioussize (810 billion rials; $10. billion) it marks a change in the phase -fdevelopment from simple import substitution of consumer goods to the estab-lishmnt of domestic capra-ty fnr intermdliate and sonme canital onnoc, aswell as a new export orientation acquired by resource-based products such asnatural gas, shoes anTd textiles.

13.4 Th.e basic ob4ectiv o_ f the -ourth PIan are:

(a) A- Ln in the rate of economic gyrownth by npacina thehighest priority on industry and scientific management.

- 216 -

(b) More equitable distrilbution of income by providing employment,socia:L services, and development activities, particularly inrural areas.

(c) Greater economic self-sutficiency through expandedagriculture, and greater supply of raw materials todomestic industry to help raise further the output ofconsuner goods.

(d) Diversification of export goods, expansion of existingforeign markets and penetration of new foreign markets.

(e) Improvements in administrative services to cope with thefar-reaching social and economic reforms that are under way.

13.5 Quant:Ltatively, the objectives of the Forth Plan are: an averageannual increase of 9.4 percent (cumulative: 57 percent) in the GNP; a risein per capita income in real terms from $220 at the end of the Third Planto $307 at the end of the Fourth Plan; an increase in the ratio of savingsto GNP from 18 percent to 25 percent; an average annual increase of 15.6percent in exports against an increase of 13.1 percent in imports.

13.6 The following principles were used in assigning priorities tovarious sectors and selecting their rates of growth:

(a) Emphasis on industrial investment because: it has ahigher sectoral rate of return; it will extend modernprodu,ction and management techniques to other areas; it isnot vulnerable to natural and climatic conditions; it canadapt its products to the requirements of the economy.

(b) Emphasis on agricultural investment, so as to be self-sufficient in food, as well as expand rural purchasingpower and through it, the size of the domestic market.

(c) Continuation of investment in economic infrastructure tokeep in step with, and stimulate further productive activity.

(d) Increasing the productivity of existing and new capital.

13.7 The following general policies have been applied to the FourthPlan:

(t) Piihlir vq Private Sector: Apart from political considerations.investments in the public sector will be favored whenevercnaital needs nre high, when access to foreign markets and

advanced technology with foreign participation are beyond thereac-h of nri-vat- rt1p antd when indutrries arF hi.qir and of

vital importance to the nation. Provided it is not against thepublic interest, the nrivate sect-r will eh welcome to arepa in

- 217

which it is interested, and will be assisted by the governmentwith technical and financial assistance and protection againstforeign competition; provided this does not result in a heavyburden on the domestic consumer. On the basis of these principles,the allocation and sources of the Fourth Plan expenditure are asfollows:

Table 13.1: INVESTMENT IN 'DIE PUBLIC AND PRIVATE SECTORS(billions of Rials)

Public PrivateSector Sector Total

Agriculture and Anima:L Husbandry 25.0 41.1 66.1

Industry and M4ining 86.7 120.3 207.0

Oil and Gas 42.3 52.3 94.6

Water and Power 98.4 1.2 99.6

Other Sectors 191.1 151.6 342.7

Total 443.5 366.5 810.0

Percentage of Total 54.7 45.3 100.0

'I'.a,-le I1 ' 1) . O f'I ,ltC. Cst T l r"0M%' q',AT 1Table 1.) UU2: UrUR J' LINv 1S12.iNl

(billions of Rials)

Public PrivateSector Sector Total

Plan Organization Credits 380.2 34.9 415.1

GovernmiIejnt Enterprises and 1unHiCIpa.LL.Le5 i 3.3 - 63.3

Private -Resources - 331.6 331.6

Total 443.5 366.5 810.0

13.8 (b), Price Stabilization_Policy. The Fourth Plan aims at rapideo.. go- VI with Ve p L%ri c LstLabiL.LLty, tLhLUroL1

the use of sound financial, monetary and foreign exchangeplces, a,.d a control over the supply o' essential agrX cultural~1 L L ~.eLLcJ d_L LU ULL di

commodities. Deficit financing will be sough t to be avoided by4ncrelasing gcivernm,ent revenue, li'ting adm-ininstrative expenduturetL within a maximum incr e oLfIL 10 p UIILLii fLiiign

to within a miaximum increase of 10 percent, utilizing foreign

- 218 -

credits and loans to overcome the shortage of develoDment resources.and ut:ilizing private sector savings by a policy of offering optimuminterest rates on Treasury bonds and other government siCiriti e.

The country's foreign exclhange revenues will be judiciously used toiTnnort Pespntin1 carnitl anid intprmpdintp eoodriq q wpll ng rnw

materials and essential consumer goods with an unsatisfied domesticdpmnnd t-o mon tin upeces incomes nand relieve inflntionarV pressures.

Stabi:Lization of agricultural prices will be achieved mainly bycon.st-fruting o q1i for the storage of main produrhit to hblance

availability.

13.9 (c) Employment Policy. The employment potential of the new investmentWill be maxVmii7Pe1 hv nrnoi1rncying the aromith nf Qmnll andl medA4,im-

sized labor-intensive establishments. These would be developed asancillaries to larg-cle plants, and could be formed into coope-rative societies. Endeavors will be made to guide such establish-ments to specialized production, at the same time preventing exces-sive raechanization without affecting costs unduly. Handicraftindusltries willl be encouraged to penetrate new domestic and foreignmarkets. Priority will be accorded to labor-intensive projects.

B. Tlwellve Articlies of teh Whlt~e Reolul-ion

1,3.10) Despite progress in lay-ing the bIasc ph-ysical i nfrastructure of a

modern economy the social strxucture in Iran had remained essentially feudal."T1his prevented thL'e fruits of economic development from permeat'ing down to th-e

people at large, especially in the rural areas. The present Shah therefore£ULorIUdLateU an inILtr6L aLd serLesl oUL 'Uas' Lc rULefor s LU LntrIILLUUUe so'UILWons to

Iranian problems at root level. The "White Revolution" was adopted througha national referendum on January 26, 1963 and now consists of the iollowingtwelve articles:

(i) The abolition of the peasant-landlord tenure-system, and the re-distribution and sale to their former peasants (on easy terms) ofall landed estates in excess of one village.

(ii) The vesting of all forest lands in public ownership.

(iii) The sale of state-owned enterprises to private corporations andindiv-iduals to raise finance for further development, and offerinvestment opportunities to former landlords and small savers.

(iv) Distribution of 20 percent of net corporate earnings to industrialworkers as a share of profits.

(v) Extension of tniversal adult suffrage.

(vi) Formation of the Education Corps from high-school graduate con-scripts to act as primary-school teachers in rural areas andmulti-purpose village-level workers.

- 219 -

(vii) Formation of the Health Corps from physician and dentist conscriptsto take free medical attention to rural areas.

(viii) Formation of the Development and Agricultural Extension Corps tcinstil modern methods and higher farm productivity.

(ix) Formation of village courts to offer speedy iustice in the ruralareas.

(x) Nationalization of all water resources.

(xi) Implementation of extensive reconstruction programme in all areasto imnrnve livina standards.

(xli) Reorganiztfin nf administratiuv and educational systems tn meetthe new requirements.

C. rneort, Export and Tariff Policy

13.11 A regards i-mports, the policy of import substItution by meansdomestic production is, ln the first instance, directed towards basic con-suxner goods, mAd then to raw materals rnd capital goods. To conserve foreignexchange, domestic production will be extended in step with the substitutionof imports. Wherever manufacture is technically feasible, parts or sem4-manufact;ured goods will be imported and assembled by factories which undertakea ph-tlm progrnn, of manufacturee of parts localliy. Faet s ,4- 14-- fllensed

specifically for such phased manufacture will obtain exemption from paymentof im.port duty and c-nri..3

4 1 be,nefit- t A -eend -A4--. t-h type o-,f- as- 1 s-4.

product, and the percentage of local manufacture. The Ministry of Economy willdecide, wh.i4le lhacensin.g such factor4es, wheter they zre t*cA-c-l-y -A e -

nomically profitable to Iran. Special facilities, exemptions, and necessaryprottection will 1 1 t- J -tnI ustr- J . -4 _4 -4 -- 4 w- - v1 e1-w4 - -t-- . .- - -4 -1

p L .J .UL1 W±J. X UC t.L.VJ UU LU L IUU LL- = £C_LU x.LL U. Ly CILp L L 6 *W L 1[s L.a

resources, and creating employment.

13.12 Importers of machinery may be directed to export finished goods topay for som,e of th'.-e tforeign exchar.ge cos ts .

13.13 lT,e expor; po'licy air tI'lversClI Jation of export goods to cover

exports of finished products in addition to the present raw materials. Fluc-tuations iLn agriLcu'LturaL pr'ices ar.u Udaigers of 'Lorg-ter, UdependUence on oiL'Lrevenues, call for a policy of gradually extending the new trend towards ex-ports oL naturaL gas, aluminumI andU petro-che.-,,icals. Reciprocal imrtportingarrangements will be made with countries entertaining Iranian exports.

- 220 -

D. L 'LncentLves

13.14 At the discret'on of the Ministry of Economy and the Ministry ofFinance, those companies which have been active in the fields of export ofone or several types of inaustrla'L and export goods or in tne extraaictionand exploitation of mines, or in melting and refining of minerals or the man-ufacture of industrial products shall have the foliowing advantages:

(i) Exemption from income tax for a period or rive years from thedate of commencement.

(ii) Import of packing materials free of customs duty, providingthese are used for packaging exports.

(iii) Entitlement to obtain drawback of all customs duty paid on rawmaterials used in making the product or its packaging.

E. Industrial Licensing

13.15 The shape, direction and size of new fixed investment in Iran arestrictly controlled by industrial licensing. There is no legal enactmentincorporating this regulation of the country's economic activity. However,the industrial licensing process is entrusted to the Industrial Section inthe Ministry of Economy, which also deals with import licensing. The sanc-tion contained in industrial licensing is transmitted in the case of pro-posed new units through the fact that, municipal permission to build, supplyof power and water, permission to import maclhinery and raw materials, loansfrom banks, and appointments of foreign technicians, will be forthcoming onlyafter obtaining industrial licensing approval.

13.16 Promoters desiring to set up new industrial units apply to the In-dustrial Section of the Ministry of Economy with full details and a feasi-bility report. Three criteria are applied in granting licenses for new units:

(i) Is the domestic added value likely to be at least 35 percent.

(ii) Will the content of domestic raw materials be at least 65 percent.

(iii) Would some finished products be exported.

Licenses are usually granted if at least two of these three criteria are satis-fied, and the project promises to be financially viable.

F. Poles of Development

13.17 The relatively low level of income and emplovment of the rural DODu-lation and the attraction of city life and non-agricultural jobs have started2q dfitinct migration from rural to urban centers. The regulation of such move-ments of population through the creation of poles of development has receivedcloser attention in each succee(ling plan.

13.18 The Moghan plain, the region of Khuzestan and the Ghazvin plainwere devreloped under the First, Second and Third Plans respectively. Thechief activity concerned arrangements to supply adequate water and power tisettle the rural popu:Lation, and help production of crops. In general, region-al development in Iran has first taken the form of intensive investment inregions with natural resources capable of attaining maximum economic output,and next:, the improvernent of the general condition of backward regions.

13.19 The Fourth I'lan obiectives cover (a) the evaluation and selectionof agricultural poles on the basis of natural resources and (b) the creationand expansion of industrial centers in selected regions, which would ultimatelyform industrial poles and centers for regional development. Work commenced inthe Third Plan on Esfahan. Ahwaz, Taboniz, and Arak would be comnleted In t:heFourth E'lan, and new industrial centers established in Shiraz, Bandar Shahpur,and Ghazvin.

13.20 The followinrg poliries will he followed in theepl nnleS nf deeU1nTr-

ment:

(i) provision of water, electricity, communications and telecommuni-

(ii) ectalilsehnint- of credit- nnl bannkincg facili4ties;

t44 n^wx4^1.r% f a, h.^lc mr,H^nl nnA sA-in4at-weF4-T os-~ prvIsIn o schools, mdcland ad-in-strati-e~'~

(i)" gra-4-nt of tax n,-nm.ptions and other incentives;

(v) reducing congestion in Teheran andu creat-ing condiios4o

attracting investment and skilled personnel to potential regions.

GL. rrivatization of' Governmenl t Enterprises

13 1 T.h're principle- ofr offering establ14shed public enterprises 'or sale'a .J. S 4 I A .. A ILL'L 'A. tA. A. 1 %- LaL .LA.OIL JU U .L.L. CIL Lj.L- ~ ~ .U

to privalte corporations and individuals flows from the White Revolution. Apartfr*..o providing funds for further Aevelop..enl, sucI a m.ove wouLUd achieve Lwoother ob-ectives. Firstly it would draw the erstwhile large landowners whoselands we;-e di.8stributed in exchange 'or governm.ent bonds, into the sphere ofJA.LUO ~.C U.L LA .LUULU LI- C LIIL5 U A. LIItIL. .UIU 1-~IL L1I ~IU7 1

industrial development.. They would now obtain shares in industry in returnfor eth L they have e lt - h ol dn.1 -- l i i- h , p- Je. Jp-

rightly, that private ownership and particularly private management of theseenterpr4s;es wouild Impro;ve thileir efficiency of operations and U p r ofi"t ab liJ Lty.CLLA. IJ L.C U.LU LhF VCLIL CLL.A. L.LCIyU L C d.1-L IUpLLLLU

This would lead to the most desirable effect of improving the productivity ofcapital whLich& has a1lrUeady been invested.

13.22L. In the cde 01t[e textile industry, Lhe policy of privauizaLion hasbrought to the fore the proposition of selling four existing mills, one inTehran, and three in the north along the Caspian Sea.

Industrial Projects DepartmentJune 10 1971

ANNEX

COST SUMMARY

MILL LA

Cotton print cloth - chitCM 100 23.6 x 22.8Inches 39-1/2 60 x 58

Material Metric Count Cntton Count

Vnrn-: Wrn cntt.on ),o 2)4

Filling cotton 40.6 24

Cost Gonmparison

(in rials per meter)EA.EJ.V. nonLg

Item Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 5.99 5.97 5.92 6.13 6.11 6.29 6.11 5.99

Process material 4.62 3.50 3.51 3.71 4.05 4.72 4.80 4.78

Labor 4.78 1.91 4.54 5.70 6.86 7.02 3.21 3.54

Overhead 8.o5 7.74 8.51 10.39 9.69 10.79 7.86 5.88

Total 23.44 19.12 22.48 25.93 26.71 28.82 21.98 20.18

Conversion cost 17.45 13.15 16.56 19.80 20.60 22.53 15.87 14.20

Average labor rate 29.13 27.50 202.70 208.70 94.60 124.30 51.60 38.25Rials per hour(incL. fringe benefits)

Average meters perman hour 6.09 14.4 44.6 36.6 13.8 17.7 16.1 10.8

ANNEX

COST SUTAARY

MILL 1A

Viscose print clothCM 100 27.6 x 19.7

Inches 39-1/2 70 x 50

Material Metric Count Cotton Count

Yarn: Warp viscose 40.6 24Filling viscose 40.6 24

Cost Comparison

(in rials per meter)E.E.C. Hong

It-m Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 5.98 6.17 6.12 6.33 6.32 6.50 6.32 6.18

Process material 4.22 3.58 3.59 3.79 4.14 4.82 4.91 4.89

Labor 4.93 1.97 4.66 5.85 7.o4 7.21 3.30 3.64

Overhead 7.42 7.93 8.72 10.65 9.93 11.06 8.o5 6.03

Total 22.55 19.65 23.09 26.62 27.43 29.59 22.58 20.74

Conversion cost 16.57 13.48 16.97 20.29 21.11 23.09 16.26 1l.56

Average labor rate 29.13 27.50 202.70 208.70 9L.6012h.30 51.60 38.25Rials per hour(incl fringe henefits)

Average meters per manper hour 5.91 14.0 43.5 35.7 13.4 17.2 15.6 10.5

COST SUMMARY

MILL !A

Viscose print clothCM 100 21.3 x 17.3Inches 39-V12 54 x 44

Material Metric Count Cotton Count

Yarn: Warp Viscose 33.9 20Filling Viscose 23.7 14

Cost Comparison(in rials per me-ter)

E.E.C. HongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 7.34 7.22 7.16 7.41 7.39 7.61 7,39 7.23

Process mat,erial 5.63 4.14 4.15 4.38 4.79 5.58 5,68 5.65

Labor 3.31 1.63 3.86 4.85 5.83 5.97 2.73 3.01

Overhead 6.80 6.57 7.23 8.83 8.24 9.17 6,,68 5.00

Total 23.08 19.56 22.40 25.47 26.25 28.33 22,48 20.89

Conversion cost 15.74 12.34 15.24 18.06 18.86 20.72 15.09 13.66

Average labor rate 29.13 27.50 202.70 208.70 94.60 124.30 51.60 38.25Rials per hour(incl. fringebenefits)

Average meters per 8.80 16.9 52.5 h3.o 16.2 20.8 18.9 12.7man per hour

ANNEX

COST SUtMnRY

MILL 1A

Cotton Piece Dyed ClothcM 110 40.9 x 17.3Inches 43-2/2 10! x 44

Material. Metric Count Cotton Count

Yarn: Warp Cotton 54.2/2 32/2Filling Cotton 25.4/2 15/2

COST G i'l ______

(in ria].s pr meter)h .r; .C. Hong

Item Iran Turkey U.S. Caniada U.K. Germany Japan Kong

Raw material 17.88 17.66 16.09 16.95 17.34 17.62 17.00 16.96

Process material 16.07 7.02 8.75 10.17 7.05 7.63 7.77 7.88

Labor 5.24 6.78 12.22 13.6)4 16.67 17.35 8.53 9.65

Overhead 8.08 25.60 19.87 27.04 24.91 24.66 22.69 18.00

Total 47.27 51.06 56.93 67.80 65.97 67.26 55.99 52.1t9

Conversion cost 29.39 39.40 40.84t 50.85 48.63 49.64 38.99 35.53

Average labor rate 29.13 26.30 205.10 204.35 94.80 122.45 51.70 43.90Rials per hour(incl.fringe benefits)

Average meters per 5.56 3.88 16.8 15.0 5.69 7.06 6.06 4.55man per hour

MILL 1A

Viscose Piece Dyed. ClothCMA 100 25).2 x 18.9Inches 39-1/2 6)l x )48

a4aterial Iletric Count Cotton Count

Yarn: Warp Viscose 300 denier 300 denieror 30 metric or 17.72 cotton

Filling Viscose 16.1 9.5

GCST C' ThfRTl3)N(in J21 er motor)

E.E.C. HongItem Tran Turkey U.S. Canada U.K. Genranv Janan KKong

Raw material 17.67 19.06 18.90 19.56 19.51 20.09 19.52 19.09

Process material 4.50 6.11 6.12 6.46 7.06 8.22 8.37 8.34

Labor 4.48 1.70 4.02 5.05 6.07 6.22 2.85 3.14

Overhead 7.65 8.03 8.83 10.78 1026 ul2o 81 -

Total 34.30 34.90 3.8 1.87 22.70 L5.273 38.90 3-..68

C.,onversi,,n cs 166 15.8 189 222 21 19.3 17.59-,UU tL_L) V ~ j.j U .LU.7 L 7 I.(3.U4 Lf)U L.

Average labor rat- 2170 202'7 287 94 7 (I.60 I2I. 5 38.25

Rials per hour(Lincl-.fringe b e n4e1fiuS)

Average meters per 6.0 16.2 50.4 41.3 15.6 20.0 18.1 12.2man per hour

A N1i1X

F~~~ -L .Gu.Lo..6?

(in iai : j.t y

-o 2.. - . .

Ove-had1. 0 .9:.5 y.6ir5 (''.r -- i t;-;

.] It}l<..t: 3(, 1 , C:R, X (

y;ta 17 , i it}(.) 0 iY.1 20 }I .2 ( 3.3 2).0 2i9 1;7 18.

Fo '.L6Li6L 11.82 1)490. 81 1 ) 28

-O "I - - ..... A . --..- ., .

1g*~C.Hon,;CIi4|r -l .u l- ,l 'JI ,5.,, - . - -a ; .(. -i . .. rk vllG U, r KXonF;

rage l6.7 8 52.506 5.31 20.7L 5).68 2.36 51.68 5.36

FroceE~, mat.erial. 3.- -3 .1 3.16 3.31 3) . .65 4|625 4. 2 ).30

Lab)or 2 .4 I L. 72 4.0(9 5 1j'- 6.18 6.33 2.89 3.19

6 9}]. .L - 7l. 0-( f,.5 ji--3 - 8.r 9.1-7 1--

To)tICR 1.d{ I'( 1.tS 20.21 2.3.30 24.A02 25.92 19. y6 - 1. 1)-L

Conversioni cost lo.66 ]1.82 14.90 17.8]- 18.54 20.28 14.28 12.78

Average labor rate 26. l5 27.50 202.70 208.70 9)1.60 124 .30 51.60 38.25Rials per lhour(iccl.fringe bcr,enfi.ts)

Average meters pcr 11.0 16.0 )49.6 40.7 15.3 19.6 17.9 12.0man per lhouir

ANNEX

C.7

r'n r<C'M T T1.51 t. A T) hVUUVJI ,)UiJLbU&tJ.

M'LL I I

Viscose Print Cloth - ChitCM 100 26.'3 x 23.6Inches 39-1/2 68 x 60

Material Metric Count Cotton Count

Yarn: Warp Viscose 40.6 24Filling Viscose 40.6 24

COST COMPARISON(in rials per rmeter)

E.E.C. IHongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 9.20 6.60 6.54 6.77 6.75 6.95 6.75 6.60

Process material 3.86 3.79 3.80 4.01 4.39 5.11 5.20 5.18

Labor 2.87 2.08 4.94 6.20 7.46 7.64 3.50 3.86

Overhead 5.(7 8.40 9.24 11.28 10.53 11.72 8.53 6.39

Total 21.00 20.87 24.52 28.26 29.13 31.42 23.98 22.03

Converslon cost 11.80 14.27 17.98 21,4922.38 24.47 17 .23 I5.4

Average labor rate 27Q 9 7. 5n 2n0 7n 2R 7n 0), An 191, 'In i Ar q q 9

Rials per hour

Average meters per 9.32 132 41.0 33.7 12.7 16.3 14.7 9.91man per hour

C .8

GS'., r I A PY

MILL 1C

Cotton Print Cloth - ChitCM 100 20.5 - 165Inches 39-11/2 52 x 142

MaI. 1-a 1 L M 1.r<1c Count4 r'J o C 4- 4 J .oun

larn: TIV-aip Co orl 7392

Filling Cotton 33.9 20

COST COMPA RISON(in rials per meter)

E.E.C. IlongItem Iran Turkey U.S. Canada U.K. Germany Janan Kongr

Raw material 5.'45 5.'49 5.44 5.63 5.62 5.78 .62 5.149

Process material 4.42 3.35 3.36 3.55 3.88 14.52 4.60 4.50

Labor 4.82 1.53 3.64 4.57 5.50 5.63 2.58 2.84

Overhead 6.63 6.19 6.81 8.32 7.76 8.64 6.29 4.71

Total 21.32 16.56 19.25 22.07 22.76 24.55 19.09 17.62

Conversion cost 15.87 11.07 13.81 .16.44 17.14 18.77 13.47 12.13

Average labor rate 26.75 27.50 202.70 208.70 94.60 124.30 51.60 38.25Rials per hour(incl.iringe benefits)

Average meters per 5.55 18.0 55.7 45.7 17.2 22.1 20.0 13.5man per hour

COSTZI Q1J,PftrAT-V

YJJ.L 1GJ. UIA

MTT.T. -I

Cotton Bleached Cloth - ChelvarCM 177 20. x 18.9Inches 61 52 x 48

Materaia Metric Count Cotton Count

Yarn: Warp Cotton 33.9 20Filling Cotton 33.9 20

co0T COIMPARION(in rials per meter)

E.E.C. HongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 9.60 9.01 8.93 9.24 9.22 9.49 9.22 9.02

Process material 3.25 2.19 2.19 2.31 2.53 2.94 2.98 2.98

Labor 5.41 2.52 5.97 7.50 9.02 9.24 4.23 4.66

Overhead 7.99 9.56 10.52 12.85 11.98 13.34 9. 72 7.27

Total 26.25 23.28 27.61 31.90 32.75 35.01 26.1 5 23.93

Conversion cost 16.65 124.27 18.68 .22.66 23.53 25.52 16.93 lL.91

AvTerge, I Vhor rntt- 26.75 27.50 202.70 208.70 94.60 12L.C0 '1.50 38.25Rials per hour(i n1-frimrn henofits)

AnTcXrag meters per 4.94 10.9 34.0 27.8 10.5 13.5 12.2 8.2

man per hour

ANNEX

COST 'SHI<IAr?YMILL 2-A

65/35 Polyester/V scose Piece Dyed ClothCM 100 42 x 27

Inches 39-1/2 - 106 x 68

Material Metric Count Cottoni Count

Yarn: Warn 65/35 Polyester/viscose 64.3 38

Filling 65/35 Polyester/ 64.3 38viscose

COST COMTIA TLvTX)sN(ir ] rial cr rn r, r-er

E.E.C. HongItem T-a- Turkey TT. C nada U.K. (

Trn-rv 1 Japn Wnrr,

Raw materl 1 0 1 1 7i 73 7.59 7.48

Process m,ateriLa' 3-00 3.3 3.1 .5 38 4.44 4. 53 .5

T a? 01) .U 0.0 .L U- ±.~ 1.± ~ 5Lbab-or 6.73 2.8 UV8 8.54 iO.27 i.2 4.81 5.31

Overhaead 6.77115 127 155 14.>Z -L6.17 11-.76O 8.02

Total 28.050 31.07 30.47 35).4U 6. 38.90 28.69 26.12

Conversion cost 16.50 17.76 22.86 27.61 28.61 31.13 21.10 18.64

Average labor rate 29.13 27.50 202.70 208.70 94.60 124.30 51.60 38.25Rials per hour(incl.fringe benefits)

Average meters per 4.33 9.58 29.8 24.4 9.21 11.8 10.7 7.20man per hour

ANTEX

i'11jj 1A

COST MllffliutY

1"U'1 2A

Vi.scose Print ClothCM 92.5 32 x 2].'Tnches 36- 82 x 54'

Material Metric Count Cotton Count

Yarn: Warp Viscose 40.6 24'Filling Viscose 40.6 241

COST GOM-PARISON(in rials per meter)

E.E.C. HongItem Iran Turkey U.S. Canacda U.K. Germany Japn Kong

Raw material 7.5( 6.69 6.63 6.86 6.84 7.05 6.85 6.7(

Process material 5.0o 3.87 3.88 4.10 4.48 5.21 5.31 5.29

Labor 6.73 2.12 5.03 6.32 7.60 7.78 3456 3.93

Overhead 6.77 8.57 9.43 11.52 1(.74 11.96 8._4 6.5

Total 26.00 21.25 24.97 28.80 29.66 32.00 24..43 22.43

Conversion cost 18.50 14.56 18.34 21.94 22.82 24.95 17.,58 15.73

A-verage a.bor raue 29.13 27.50 202.70 208.70 94.6o 124.30 51.60 38.25Rials per hour(iMel .fringe benefits)

m-verage meters per 4.33 13hu 40.3 33.0 12.4 16.r 14.5 9.73mani per hour

ANNE-X

-r

COST SW1IMNRY

M;iii 28

t('ttonn rint Cloth =C oderreCM 1 22 x 22nches 30 I6 x6f

Mi t$ i'~ I TAcr.I-i -r nin (.+ nyl Pnl i

YLan Warp Gotton l6 C14

Filling Cotton ho.6 2)4

COS"T C01YPARISON(in ial per ifltter)

E.E.C. hIongItem Iran Turkey U.S. Carnada U.K. Ge--many Japan nonfg

Raw material 5.65 5.65 5.60 5.79 5.78 5.95 5.78 5.66

Process material 3.99 3.30 3.31 3.50 3.b2 4.45 4.53 4.51

Labor 3.96 1.81 4.30 5.40 6.50 6.65 3.04 3.36

Overhead 5.0] 7.32 8.C5 9.83 9.7 10.21 7.f 3 JL,7

Total 18.6] 18.08 21.26 24.52 25.2 27.26 20.78 19,10

Conversion cost 12.96 12.1i3 15.66 18.i73 19.49 2131 15.0( 13h1,

Average labor rate 28.50 27.50 202.70 208.70 94.60 121t.30 51.60 38.25Rials per hour(incl.fringe benefits)

Average meters per 7.20 15.2 ),7.1 38=6 1), 18.7 17.0 11.man per hour

ANND':

C. 13

CCi.'T DSti'lTilARY=

P1,I1 213

Cotton Bleachled Cloth - ChelyarCM 100 22 x 19inches 392 56 x 48

Material Me-tric Count Cotton Count

Yarn : Warp Cotton 40.6 24Filling Cotton 40.6 2h

COST OOMI'ARTEON(in rial, pur meter)

E.E.C. HongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 5.30 5.25 5.21 5.39 5.38 5.5)4 5.,38 5.26

Process materia] 1.10 1.23 1.23 1.30 1.42 1.65 1.68 1.68

Labor 3.65 1.70 4.02 5.°5 6.07 6.22 2.865 3.L1

Overhead 4.22 6.44 7.09 8.66 8.08 8.99 6 - h.90

Total lV.27 14.62 L7.55 20.40 20.95 22.)40 16.JL 14.98

Conv-si- cost 0 - .31 - 2.3" i5.u- 1 I6- R6 or - 8 9.72O*(- t.Ls-. i>4 u I I)j~ 10. 00 LI. (O Y-/

Average labor rate 28.50 27.50 202.70 20r.70 94t.60 124L.30 51.ti0 38.05Rials per hour(incl .fingLe beefits) ~

Average meters per 7.81 16.2 50.J-f 4i.3 15.6 20.0 18.1 12.2man per hour

A 1ThTR'V

M; I-I 9 (.

CM 93 4o.1 x 24Tn-ckes 36'; 10)2 x 60

1a. Uer-Ial ;,eU.tic n'oQIJU UCot'c,n C.Lunt

Yarn: Warp Co tton 61 36Filling Cot.torl 50. 6 30

COST C'MPARTWON(in rials per mneter)

E.E.C. IlongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 4.66 5.45 5.40 5.59 5.57 5.74 5.58 5.45

Process mnaterial 3.70 3.21 3.22 3.40 3.72 4.33 4.!41 4.39

Labor 4.91 2.48 5.88 7.38 8.88 9.10 4.16 4.59

Overhead 13.10 10.01 11.01 13.45 12.54 13.97 10.17 7.61

Total 26.37 21.15 25.51 29.82 30.71 33.14 24.32 22.04

Conversion cost 21.71 15.70 20.11 24.23 25.14 27.40 18.74 16.59

Average labor rate 26.75 27.50 202.70 208.70 94.60 12)4.30 51.60 38.25Rials per hour(incl.fringe benefits)

Average met.ers per 5.45 11.] 34.5 2i.3 10)7 1 37 12-) 8.33man oer hour

ANNEXC.,

COST SUiMMirxY

Mill 2C

Cotton Piece Dyed ClothCM 100 33 x 17lnches 3'P.F 84 x 4h

Material Metric Count Cotton Count

Yarn: Warp Cotton 43. 6 24F'illing Cotton 2 7. 1 16

CO''T CGO PA.J,iSON(in rials per rmeter)

E.E.C. Hongltem Iran Turkey U.S. Canada U.K. Germany JapalL Kong

Raw material 6.o8 7.39 7.33 7.58 7.57 7.79 7.57 7.4(

Process mat,erial 2.38 4. 43 4.44 4.69 5.13 5.97 6.07 6.o5

Labor 3.56 2.15 5.09 6.39 7.69 7.87 3.60 3.97

Overhead 10.41 8.67 9.54 11.65 10.87 12.10 8.81 6.60

Total 22.43 22.64 26.40 30.31 31.26 33.73 26.05 24.02

AI n1 r' r' f i 1 nf 7 - n ' In \ ,->I n A - /QuLjvt-i-.I .LuH CL"J LU.) C>) 1y ec. ) ec).u>i L>y1 U0. /O ±O. Cu

Average lasbor ra'ee U. (24 2.u 202. (U3uo. (U yL4O 3 c.5 5L.JURials per hlour( '7n, b f I 4 ene`s] fs0

Avui-agn iieters per 7.51 12., 3S.8 32.i 12.3 h>o ±,ur. 9.63mlan per hour

ANNEX

C. 16

c(o.flVrT s1r.1 A

MiLl 3B

Cotton BleachedCM 99 2)i x 21inches 39 62 x~ ') , I~.tAA~.JL ) Jy kIL Jt 14

'KAa4E- T'f4 I 01

raeil ,4-,ic rCou,n4. Cottlon C'ountl

Waar: Waup ;ot toni L4. U 4

Filling Cot.t,on 40.8 2 4

COST /)NIPART^D)N(in rials per meter)

E.E.C. HongItern Iran Turkey U.S. Canada U.K. Germany Japan Kong

Raw material 5.76 5.69 5.64 5.84 5.82 5.99 5.82 5.70

Process material 1.80 3.34 3-35 3.54 3.87 4.50 4.58 4.56

Labor 2.11 1.83 4.34 5.45 6.56 6.71 3.07 3.39

Overhead 7.37 6.96 7.66 9.35 8.73 9.72 7.07 _5__3

Total 17.04 17.82 20.99 24.18 24.98 26.92 20.54 18.95

Conversion cost 11.28 12.13 15.35 15.34 19.16 20.93 14.72 13.25

Average labor rate 25.38 27.50 202.70 208.70 94.60 124 .30 51.60 38.25Rials per hour(incl.fringe benefits)

Averagye meters ner 12.0 15.0 ,. 3&- -i.4 18. 1. 11.3manL_.'J. 4 4 peru hour.

man per hiour

ANNEX

COST S0JNt4ATHY

Mill. 3B

Cotton 1in.ece DyedCM 95 36 x 21

Inches 3K 92 x 51

maLter r Metric Count Cotton Count

Yarn: Warp Cotton 42.5 2'.Filling Cotton 39.1 23

COST COTIPA RISON(in rials oer mieter)

E.E.C. HongTtem Iran Turkey U.S. Canada U.K. Germanv Japan Kong

Raw material 8.58 6.85 6.79 7.03 7.01 7.22 7.01 6.86

Pr7 materi al 7.34 6.30 6.31 6.66 7.28 OA p 8.6 A- R-59

LabDor 7,16 2.26) 5.35 6.72 8.08 8.28 3*7<, kl L8

Ovred 10.9 on I I in C 1 I9 9). 11 .I 12'.71 0 6. A3

Total 4oa ' I9). C52 OA ).7 3. 3 IQ7 '7n <A9 A AO An DA 6A5

Conversion cost 25.)40 17.67 21.68 -25.62 26.77 29.)47 21.67 19.70

Average labor rate 25.38 27.50 202.70 208.70 94.60 124.30 51.60 38.25Rla - s per 'our

(incl.fringe benefits)

Average melters per 3.5)4 12.2 37.9 31.1 11.7 15.0 13.6 9.15man per hour

ANNEX

Fillingis !4co e e 31iI2

COS'1' COMPARThSON(in rial.s per mnoter)

E.E.C. HongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong,

Raw material 20.10 25.26 25-05 25.92 25.86 26.62 25.87 25.30

Process material 4,50 4.149 4-50 4.75 5.19 6.o5 6.i6 6.13

Labor 5'.14 3.20 7.60 9.54 11.)48 11.76 5.38 5.93

Overhead 7.21 12.94 14.24 17.39 16.22 18.Uo6 13.15 9.85

Total 36.95 45y89 51.39 57.60 58.'75 62:4) 50.56 47.21

Conversion cost i6u.85 20.63 26.34 -31.68 32.89 35.87 24.69 21.91

Average llbor rate 22.',0 27.',0 202.70 208.70 94.6o 120i.30 51.60 38.25Rials per hour(inc.l frinz-e benefits)

Piroces materi pr.038 4.h>9 26.7 21.9 8.28 6O.0 9.16 6.13

man per hour

ANNEXC.1'9

COST S'u1u;JARiu

M4i'l 4A

Viscose rrint. ClothCIlI 95 34.4 x 16.8Inches 361-1 88 x 42

Material Metric Count Cotton Count

Yarn: Warp Viscose 33.9 20Filling Viscose 33.9 20

COSr COITnA RISmN(in rials per rmcter)

E.E.C. HongItem Iran Turkey U.S. Canada IJ.K. Germany Japar_ Kong

Raw material 12.10 7.40 7.34 7.5"? 7.56 7.80 7.58 7.41.

Process matierial ,.50 4.32 4.33 4.57 5.00 5.82 5.92 5.9o

Labor 3.48 1.98 4.69 5.89 7.09 7.26 3.32 3.66

Overhead -5.3 7.98 8.76 -10.72 10.00 11.14 8.11 6.07

Total 26.51 21.68 2' . 14 28.77 29.67 32.02 2)4.9S 23.01

Cve o 14.41 14.28 17.80 21.18 22.09 24.22 17.35 15.63

AVr-age `aor rate 22. 5 27 .50 20(.70 20O8.70 94.60 124L.30 51.O 38 .25Rials per hour(k.nci .frirge benefilts )

A-verage meters per 6.47 13.9 43.2 35.4 13.3 17.1 15.5 10.5man per hour

AiN1N!

C. 20

[r{\,(i-p "I , 'AT-',"jI.L I ru,,--

3'0/ .0 rolyester/Vi.scose Piece WyedI Clot.hCO L60 3( x 20nches 63 76 x 0

L ttAJid L Mc-tji u U Count

Yarn: Warp 0/S50 Polyester; 37.3i2 22/2Viscose

Filling 5;O/jo Pol.rester/ 37.3 22Viscose

CO'ST COfPAfIRTSON(in rials per meter)

E.E.C. HongItem Iran Turkey U.S. Canada U.K. Germany Japan Kong

law material 32.03 40.04 22.89 23.45 23.09 23.55 22.841 22. db

Process rmaterial 4. o 10.67 10.69 11.29 12.34 14.37 14.63 1)4.56

Labor 7.64 4.5( 10.68 13.L4 16.13 16.52 7656 8.34

Overhead 7.6J 18.18 20j00 24.JA2 22.78 25.37 18.L7 1J.83

Total 51.L0 73.39 6l.26 72.57 71h.3 72.8 63.50 59.2

Conversion cost 19'.37 33.1~ Uil.37 i49.12 51.25 56.26 L0.66 36.73

Average l,abor rate 26-75 27.0O 202.70 208.70 9h. 60 12h.30 51.60 38.25Rials per hour(inc fringe benefits)

Average meters per 3.5 n 1 19.0( 16 .h 7.02 h8 6 q

man per hour

ANNEXG.21

COST SU'MARY

MILL 2C

Worsted ClothD4 162 11.9 x 12.5Inches 63-1/2 30 x 32

AMa'1 eral ~1. 4le,ri Con, Ibrsted Cln--'-

YIarn: Wnarp 'WJool2/.6/0

Filling Wool 2/22.6 2/20

COST COIJIA RuTSOM(in rials per ineter)

E.E.C.I em Iran Turkcy U.S. Canada U.K. Italy

Raw material 97.94 145.24 97.14 86.43 74.77 112.29

Process material 17.23 4.32 5.00 5.72 6.73 6.19

Labor 19.35 23.84 37.28 40.06 39.51 33.04

Overhead 77.14 57.32 45.33 53.82 48.54 38.95

Total 211.66 230.72 184.75 186.03 169.55 190.47

Conversion cost 1:L3.72 85.48 87.61 99.60 9L.78 78.18

Average labor rate 26.75 36.24 187.99 192.L4 94.67 124.86Rials per hour(incl .fringe benefits)

Average meters per 1.38 1.52 5.04 4.80 2.4i0 3.78man per hour

ANEXC.22

MELL 2C

55/45 Polyester/Wool Piece Dyed ClothC'M 172 2 px 20.5 1

Inches 67-1/2 70 x 52

Material Metric Couln-t; Worstal Count,

Yarn: Warp 55/45 Polyester/Wool 2/54.2 2/48Ia'illing55/45 Polyester/Wool 2/54.2 2/48

COST CMMPARISON(in rials per meter)

E.E.C.Item Iran Turkey U.S. Canada U.K. Italy

Raw material 72.82 96.46 55.05 56.31 50.28 64.77

Process material 14.74 4.82 4.69 5.37 6.31 5.81

Labor 19.73 69.19 85.95 94.18 93.63 77.45

Overhead 123.67 105.30 80.75 81.91 89.18 68.52

Total 230.96 275.77 226.44 237.77 239.40 216.55

Conversion ost. 158.14 179.31 171.39 181.46 189.12 151.78

Avera-e labor rate 26.75 36.64 187.31 192.28 95.37 124.27Rials per hour

(inc.frnge b,e-nefiits)

Averae riteers per 1.36 53 2.18 2.04- 1.02 1.60man per hour

ANNE-)"C. 23

MILL 3AWorsted Piece Dyed ClothCM 160 26.8 x 26.8Inches 63 68 x 68

Material Metric Count Worsted Count

- -. Wn~f)l 2In-0Yarn: Warp -, 20 23

Filling Wool 1/20.3 1/18

COST (CI2TARISON(in rials per meter)

E.E.C.Item Iran Turkey U.S. Canada U.K. Italy.

Raw material (purchasel 218.41 289.98 193.94 172.55 149.28 224.19yarn)

Process material 30.00 5.18 6.oo 6.87 8.07 7.43

Labor 42.23 30.96 48.40 52.01 51.29 42.89

Overhead 98.55 74.43 58.86 69.88 63.03 50.57

Total 389.19 400.55 307.20 301.31 271.67 325.08

rGnversion nos. 170.78 110.57 113.26 128.76 122.39 100.89

Average labor rate 20.38 36.2L 187.99 192.44 9h.67 124.86Rials per hour(inpl. -frinp hbenefits.)

Avera-e meter. per .48 1.17 3.88 3.70 1.85 2.91b p h r

man pCI hour

ANNEX

1

lul:L 3At

'wors Led Top gyed ClothCM t6o 26.8 x 26.8inches 63 68 x 68

wrwu Mctric Cotant v'rsted Coau

Yarni: Warp 2o]-. 2/J0.4 2/36Filling Wool 1/20.3 ]/11

COST COMPARISC N(in rials per 3;otCer)

E.E.C.Item Iran Turkey U.S. Canada U.1K. Italy

Raw material 109.82 18o.1)4 120.48 107.19 92.73 139.27

Process material 27.91 5.18 6.oo 6.87 8.07 7.43

Labor 76.78" 51.60 60.67 86.69 85.49 71.49

Overhead 1'79.18 1241.05 98.10 116.46 105.06 84.29

Total 393.69 360.97 305.25 317.21 291.35 302.48

Conversion cost 283.87 180.83 18 1L.77 210.02 198.62 163.21

Averaue labor rate 20.38 36.24 187.9' 192.44 9L.67 12)4.86Rials per hour(inc. -fringe benefits)

Average meters per 27 70 2- 3 29 22 1. 1. 1.75man per hour

ANNEX

C.2,S

COST Sup:iutA

Mill 3A

Worsted Piece Dyed ClothCM 160 29.1 x 29.1Inches 63 714 x 74

Material Metric Count Worsted Count

Yarn: Warp Wool 2/ItO.6 2/36KLlling Wool 1/27.1 1/24

COST COKPARFSON(in rials per meter)

E.E.C.Item Iran Turkey U.S. Canada U.K. ltaly

Raw materiaL 1.03.04 175.15 117.14 104.22 90.16 135.L40

Process material 26.18 h.99 5.78 6.62 7.78 7.16

Labor 72.0Ol 57.97 90.63 97.39 96.o4 80.32

Overhead 168.11 122.31 110.22 130.85 118.03 94.7

Total 369.37 377. )48 323.77 339.08 312.01 317.58

UOL1tW1±L1 LUon , LnU.) LU(.)) LJ .3 L.) 1. OK) nL...) -I 0C ' Q Lu IVVU1Vi,z-LU1jio cost, ii- -vc 26-3 20.3 20.63- ujC C23-U6 22].85 182.18

Average labor rate 20.3 36.2)4 187.99 192.t4 914.67 12L-4.86R:ials per hourk.Lnic'l.LfrLnge 'DuneUfJI ts')

Average meters per .28 .63 2.07 i .I U .99 1.5man per hour

ANNEDC

C. 21"

COST__CIrViWl. ,y

CIl' Lj5 21x I 1ln hs r61I."5.i A 5

-111 ''Uler. JL 2g.) A )4L4l.,,,

Yarn: Warp 50/So Viscose/ 2/29.h 2/26Wool

Eifllingr D0/O Visuose/ 2/29.4 2/26Wool

COST COMPARISONJl(in rials per muter)

E.E.C.Itemn Iran Turkey U.S. Canada U . K. Italy

Raw material 81.76 133 .l7 76.17 77.91 69.57 89.62

Process material j.2? 6.Y2 t9.73 7.71 9.06 8.33

Labor 27.00 53.77 66. 80 73.1'3 72.77 60.19

Overhead 611.38 81.85 62.77 63.67 69.32 53.26

Total 185.3f8 276.01 212.47 222.48 220.72 211.40

Conversion cost 103.62 142. 5h 136.30 ih5.29 151.15 121.78

Average labor rate 25.50 36.6] 187.31 192.28 95.37 12h.27Rials per hour(incl.fringe benefits)

Average meters per .9), .68 2.80 2.63 1.31 2.06man per hour

ANNEXC. 27

COsrT s)ITAUUU

MTT T DOr

50/50 Viscose/Wool ClothCM 155 11 x 11Inches 61 28 x 28

Material Metric Cournt Woolen CoubiL

Yarn: Warp 50i50 viscose/Wool 6.5 2 runRilling 50/50 Viscose/Wool 6.5 2 run

COST (.iI. r N(in rials per meter)

E.E.C.Item Iran Turkey U.S. Canada U.K. Italy

Raw material 72.30 120.43 68.73 70.30 62.78 80.87

Process material 10.24 16.50 16.04 18.36 21.59 19.86

Labor 27.00 24.85 30.87 33.82 33.63 27.82

Overhead 48.24 53.63 41.13 41.72 45.42 34.90

Total :157.78 215.41 156.77 164.20 163.42 163.45

Conversion cost BK-hS 9b.98 88o4 9390 100=64 82=5

Average labor rate 25450 36;64 187 31 192-28 95 37 124.27JRials per hour

-; 1 p4, 1,.- -4 4-ALncl .11 U,g LCU1t:.L ±v

Ak A 1n7 C AC) o PI.c SC;.C I. 0

A-verage meters per .94 1.47 6.07 5.69 2.84 4.47man per hour

C. 28

4MIL1wM, v-L- ;BCloth

CM 160 56 x 33Inches 63 142 x 8)

Material Metric Counrt Iorsted

Yarn: Warl Wool 2/60 2/53Fill]ing Wool 2/60 2/53

COST WMPRIARTSON(in rials per iiieter)

E.E.C.

Item Iran Turkey U.S. Canada U.K. Italy

Raw material (pur- 301.55 409.21 273.68 243.49 210.65 316.37chased yarn)

Process material 12.00 1.85 2.14 2.45 2.88 2.65

Labor 56.93 53.27 83.28 89.49 88.25 73.80

Overhead 132.84 128.06 117 120.23 1JD_ 4l5 ABz-ni

Total 503.32 592.39 460.37 455.66 410.23 479.83

Conversion cost 201.77 183.18 186.69 212.17 199.58 163.L6

Average labor rate 23.38 36.24 187. 09 1092.41 94.67 124.86Rials per hour(incl.fr-inge benefits)

Average meters per .41 .68 2.26 2.15 1.07 1.69

man per hour

AN1EX

C '. 25

MILL 5 B

Worsted ClothCM 173 23.2 x 20Inches 68 60 x 52

Material Metric Count Worsted Count

Yarn: Warp Wool 2/28 2/25Filling Wool 2/28 2/25

COST COTIPAHRIS(N(in rials per meter)

E.E.C.Item Iran Turkey U.S. Canada U.K. Italy

Raw material 1.35.06 229.77 153.67 136.72 118.28 177.64

Process mat;erial 34.32 6.58 7.62 8.72 10.25 9.43

Labor 94.43 45.44 71.05 76.35 75.29 62.96

Overhead 220.35 109.27 86,41 102.59 ..22L4 1d24

Total b84.16 391.06 318.75 324.38 296.36 324.27

cost-- 34.1 in IA16.29 1A6. c 1 n I7 .A6 1780 14 6.6A A3

O ' s Qp '~A oh. 1 '7 co Io) LI. o -). As7 -I '), PAAveag labor rate _23.384 36.2 I 87.9 .J2L.L4 74 IJ ±L.8

Rials per hourI-;ncl .f r' ge beeis

verage met,ers per p .-

man per hour

ANNEX

C.30

I r ,Jull 1U .L L

MILL 5C

40/60 Viscose/Wool - WorstedCM 160 25 x 22Inches 64 64 x 56

Material Metric Couunt Worsted Count

Yarn: Warp 40/60 Viscose/Wool 36/2 2/32Filling 40/60 Viscose/Wool 36/2 2/32

COST COMPAHISON(in rials per muter)

E.E.C.Item Iran Turkey U.S. Canada U.K. Italy

Raw material 114.00 146.47 83.59 85.50 76.35 98.35

Process material 10.56 6.64 6.46 7.40 8.69 8.oo

Labor 18.67 63.60 79.00 86.56 86.05 71.19

Overhead 42.57 96.80 74.23 75.30 81.98 62.98

Total 185.80 313.51 243.28 254.76 253.07 240.52

Gonversion .ort 71,80 l 1079)i I 69 169Q26 17(672 10 2-17

Average labor rate 97 A. 6 A 36 18q7. 1 109 22 95 .? 10).07t,-I -_ _, .- -- 1 ~ -. IfiJ / -...J -

Rials per hour

Average meters per 1.48 .u 8 2.3 .22 1.11 1.75man per hour

ANNEXU .)L

COST SUMMARY

MILL 5C

40/60 Viscose/Wool - Woolen FabricCM 136- 17. x I<

Inches 54 - 44 x 38

Material Metric Count Woolen Count

y arn: Warp 40/60 Viscose/Wool 10 3Filling 4o/60 Viscose/Wool 10 3

COST COMPARISON(in rials per met,er)

E.E.C.item !ran Turkey U.S. Canada U.K. Italy

Rai-i materia1 77.00 117=70 67.17 68,70 61e35 79=03

Process materl 7,12 14=40 14C0o 16=O3 18.84 17.33

Tb 18.7) 32.60 40.50 44.38 44.12 36.50

-1a 7n-q. * - tH) 7 Ko A-7

Overhead 33-W4 70a35 53.95 5).73 59.58 45.78

Tot4al L36.3 235.o5 175.2 183,8 183.89 1784 A)

Conversion cost 59.30 117.35 108.45 115.14 122.54 99.61

Average labor rate 27.63 36.64 187.31 192.28 95.37 124.27ILia-ls per hour.E(incl.fringe benefits)

Average meters per 1.47 1.12 4.62 4.33 2.16 3.40man per hIu-lor

INTERNATIONAL COST PRICE RELATIONSHIP

MILL 1A

Cotton Print ClothCM 100 23.6x 22. 8Inches 39-1/2 60 x 58

Domestic Product

1. Ex-factory selling price Rials per meter 25.78

2. Cost of Production per metre in Rials.a)] ome[tic raw materials L. R.5.9Yb) Imported raw materials R.

UlIpLJ.LU utuy I.

Landing, clearing forwarding R.BDankr chargesR..-

c) Dyes and chemicals imported R. 3.35Import duty (30%) R. 1.00Landing, clearing forwarding)Bank charges ___ R 2.4.62

d) Labour: salaries and wages R.4.78e) ro-wer .ari' othauer I-ac or-y overheuaids )R.80

f) Depreciation and financial charges)g) Total cost of production * *

h) Profit on ex-factory selling price R. 2.34

Imported Finished ProductE.C.C. Hong

Turkey U.S. Canada U.K. Germany Japan Kong

l.Imported cost of importedcloth in Iran R. 31.97 35.55 41.53 44.52 43.21 32.70 30.09

2.Import duty in Iran(35%) R. 8.29 9.22 10.77 11.54 11.20 8.48 7.803.Marine insurance and

freight to Iran R. 1.06 1.89 2.17 1.64 1.68 1.33 1.074.Selling price in export-

ing country R. 22.62 24.44 28.59 31.34 30.33 22.89 21.225.Cost in exporting country R. 19.12 22.48 25.93 26.71 28.82 21.98 20.18

A TT\TMY

P -33

IrM-T A -,Tn COST1M PRI-CEl nlTT NiL1ZrnjU)LftIUrIuAj UUw r± ru-U&. a±±ui'On.ri

MILL 1CCotton Print ClothCM 100 20.5 x16.Inches 39-1/2 52 x 42

Domestic Product

1. Ex-factory selling price Rials per meter 23..45

2. Cost of production per meter in Rialsa) Domestic raw materials R. 5.L45

b) Imported. raw materials R.Import duty R.Landing, clearing forwarding R.Bank charges __ R. -

c) Dyes and chemicals imported R. 3.20Import duty (30%) R. .96Landing, clearing forwarding) p, .Bank charges ) R. 4,42

d) Labour: salaries and wages R. 4.82e) Power and other f'actory overheads 3 R. 6.63f) Depreciat,ion and financial charges -g) Total cost of prcduction R. 21.32h) Profit on ex-fact,ory selling price -R. 2.13

Imported Finished Product,E.E.C. Hong

Turkey U.S. Canada U.K. Germany Japan Kong

1. Imported cost of imported clothin Iran R. 27.73 30.66 35.63 38.14 37.02 28.53 26.34

2. Import duty in Iran (35%) R. 7.19 7.95 9.24 9.89 9.60 7.40 6.833. Marine insurance & freight

to Iran R. .98 1.78 2.04 1.52 1.58 1.26 1.004. Selling price in exporting

country R. 19.56 20.93 24.35 26.73 25.84 19.87 18.515. Cost in export,ing country R. 16.56 19.25 22.07 22.76 24.55 19.09 17.62

ANNEX

P.34

irIEVNHATIONJAL COST PRICE RELATIONSHIP

MIIi. 2U

Worsted clothCM 162 11.9 x i2.5Inches 63-1/2 30 x 32

(in rials per meter)Domestic Product

1. Ex-factory selling price 23.

2. Cost of production per meter in rialsa) Domestic raw materialsb) imported raw materials 72.01

Import duty (30%) 21.61Landing, clearing forwarding) 6Bank charges ) % 1432 97994

c) Dyes and chemicals imported 12.49Import duty (30%) 3.74Landing, clearing forwarding) 1 00Bank charges )8% _.__ 17.23

d) Labour: salaries and wages 19.35e) Power and other factory overheads ) 77.114f) Depreciation and financial charges)g) Total cost of production 211.66h) Profit on exfactory selling price 21.17

Imported Finished Product

Turkey U.S. Canada U.K. Italy

1. Imported cost of importedcloth in Iran 345.24 271.09 277.33 240.81 272.58

2. Import duty in Iran (30%) 79.67 62.56 64.00 55.57 62.903. Marine insurance & freight

to Iran 6.09 7.67 8.40 6.25 5.574. Selling price in exporting

country 259.48 200.86 204.93 178.99 204.115. Cost in exporting country 230.72 184.75 186.03 169.55 190.47

FORM No. :386 iNTERNATIUINAL DEVELOPMENT INTERNATIONAL BANK FOR INTERNATIONAL FINANCE(11-69) ASSGCIATION RECONSTRUCTION AND DEVELOPMEN'T CORPORATION Anrn.-x 35

PRE INVESTMENT PROGRAM - STUDY DATA SHEET No.: - L

|rea: Textile Industry Country: Iran Sector(s):Government controllcd mills

4- 4 U±JILZd L4 .U- J14I1 V4 ± Ll4i- , U4 . L _4Ui _ U±L - tA 4L,±L - -

1. NAME OF PROPOSED STUDY:

2. PUl POSE , ra io:a l t li g r cms(4) making them competitive internationally in order to increase their exports;

(2) *t oreduce +hecost+,~ +of te+ les for +heo dnwomestic cor:vsoer; and

t o serve as models for the private textile industry to emulate.

13u SCOPE:- R thcommeindthe optimu size of -the lants anJ. the appropriate type of cloth to beP_FU d 114in llt dU light UU ecl1fla and L1id1_&tin Sa

- Recommend thez rebu:ilding and/or replacement of existing facilities and equipment by ration-alizi |ng the 8 Ciill

a~L_ZJ_1g LA U L) ILi±±±-

- Make capital cost estimate<s broken dowrn by components.- aecuirmrdenud a su±1,au_e managemrient aiu uorganlzationral set-up, personnel requiremenus and

qualificati ons.- Hecommend production personnel requirements based on efficient developing country standards- Production cost estimates with comparison with international costs, Iranian sel:Ling prices

ana woria seiling prices.- Evaluation of the project's economic and financial aspects with rate of return on invest-

4. BACKGROUND: (a) Related Studies (b) Other Available Data (c) Expected Data Problems

1) Textile survey Data based on files containing 55 Inadequacy of officiala) Turkey years of textile consulting ex- factual da.ta. Consilt.ant.Jb) Iran perience with Nannery Associates, will have to assemble ther.) Algeria TT.S.A_. & other textilpe .cnsult2tnts = dta in Trann.d) International Cost Survey.

12)Feaibn_~ ilityv q+.1ir Ia) Ecuador; b) Mexico; c) U.S. studies.

5. TIMING: (a) Duration and Phasing of Study (b) Desired Starting Date6 months

a) Marketing d) Costing 6-8 weeks after notification ofb) Modernization e) Cost comparison acceptance of proposal.c) Staffing f) Evaluation

6. COMMENT ON POTENTIAL STUDY SPONSORS:1) International Bank for Reconstruction and Development.2) Ministry of Economy, Government of Iran.3) IMDBI, Iran.

7. PROJECT(S) EXPECTED TO RESULT FROM STUDY (if known):(a) Description (b) Estimated Investment (US$ equivalent)

Expansion of -the cotton, woolen, knitting and $471 million.apparel industries in Iran, 1971-1980. (c) Financing Need and Potential Source

Foreign exchange component:q ~$271 millioDn.l

8.ORDER OF MAGNITUDE OF STUDY COST (US$ equivalent): Sheet Prepared by: Aroon K. Basak$60,000 plus out-of-pocket traveling and living Dept. or Agency: Industrial Projects Dept.expenses. Date: June 10, 1971.

9. STAFF"S COMMENT ON PRIORITY RANKING OF STUDY: Sheet Revised by: .-Hig.L pLU - iy lfor 19S.7 L. St- UdSUty shIuLdLU.L i L-J ' Ised

ment of the modernization and expansion of the Iran- Item(s) Revised |

! +iv+.jl Piirustryr which has a key role in the Deot. or Aaencv 1development of the Iranian economy in 1971-1980. [Date: -

Le - -L

FORM No. 286 INTERNATIONAL DEVELOPMENT INTERNATIONAL BANK FOR INTERNATIONAL FINANCE(11.69) ASSOCIATION RECONSTRUCTION AND DEVELOPMENT CORPORATION Annex jb

PIREINVESTMENT PROGRAM - STUDY DATA SHEET No.:

Area: Country: Sector(s):r _and I -;-sa texl;le - 4I _ _ndustrial.

indutrv. y|lieview of texti'Le fiandcrat:t aiu' srulll-sca'le sec;JU'o.

I. NAME OF PROPOSED STUDY:

2. PURPOSE:To review installed capacity, costso0 production, production metnods and potentiaicapability of handcrait and small-scale sector, to fulfil Iran's domestic textilerequirements.

3. SCOPE: 1= Esta1)1ish nresent installed capacitv, range of products and employment.2. Establish present costs.3 fletermine best role ,of this sector in fulfill.ILnz Iranfs increased textiLe

requirements, 1971-1980.4. If n1dicated, plan ontimvmm expansion nrogram.

I~ - , v ___

'I. BACKGROUND: (a) Related Studies (b) Other Available Data (c) Expected Data Problems

Studies in ot.her developing Absence of availablecouintries, espeia1.ly Tndia. data in Iran.

IEr. TIMING: (a) Duration and Phasing of Study (b) Desired Starting DatePhase 1. Determination of present position.)

A \ 0 mont.hs Before the end of 1971Phase z. Planning for the future. )

6. COMMENT ON POTENTIAL STUDY SPONSORS:Ministry of Econor%r, Government of Iran.

7. PROJECT(S) EXPECTED TO RESULT FROM SIUDY (if known):(a) Description (h) Estimated Investment (US$ equivalent)

Eqpansion of the tex.tile handcraLt andismall-scale sector. (c) Financing Need and Potential Source

8. ORDER OF MAGNITUDE OF STUDY COST (llS$ equivalent): |Sheet Prepared by: Aroon K. Bas--.k| $(o 0O0 Dept. or Agency.lndustrial Projects Dept.

Date: June 10, 19711.

9. STAFF"S COMMENT ON PRIORITY RANKING OF STUDY: Sheet Revised by:High priority for 1971. Item(s) Revised:

nnt or Agnc:.- -

- _ I I~ --- - -- _--I

±='dlvAw 37

T.JLEI MIvLLS IN Dli! tVISITED BY TIE MISSION

Cotton/Synthetic Textile Paills

Chit Sazi - TehranNomtaz - TehranChit Rays - TehranJahan Chit - KarajShahi No. I - ShahiShahi Nlo. !I - ShahiBehshar - BehsharSimin - EsfahanShahnaz - EsfahanBaresh - Esfahan

Woolen Textile Mils

Ploghadam - KarajVatan - EsfahanSanayei Pashlm - EsfahanTai - Esfahan