Ukrainian light industry works for exports, surrendering the domestic market to cheap imports

The National Opera’s upper circle turned out a very proper place to ponder what kind of clothes people wear in Ukraine these days. No one appeared sporting traditional Cossack sharovary trousers or even vyshyvanka embroidered shirts. Little wonder, for fashion is more susceptible to the times than anything else; even if it turns backward it does so for no political reasons. Another thing was surprising. A quick glance at the ladies and gentlemen walking through the corridor betrayed an almost complete absence of patriotism when selecting clothes and shoes for going out. In fact, the footwear was almost entirely foreign-made. As for dresses, suits, pants, jackets — in a word, sets of clothes as products of light industry — two trends could be easily discerned: Turkish-Chinese and Korean-Polish, clothes bought by upper circle theatergoers at Kyiv street markets or clothes worked on by designers to resemble Western cuts and sold in the fashion stores on Khreshchatyk.

Many sporting such clothes, boasting well-known Western labels and doing justice to their hips, legs, waists, and shoulders, had no idea (or pretended they did not) that they were all made, albeit using Western paper patterns, somewhere at Volodarka or in Kyiv’s Podil lower section. Few if any would buy them with genuine labels. Habitually, we do not trust domestic products, and Ukrainian light industry has lost its better-off customers forever. The old motto, “Soviet-made is best-made,” taught its lesson and decades will pass before we change our attitude toward domestic consumer goods.

Meanwhile, Ukrainian light industry’s products have won a degree of consumer trust in the West. The German Embassy kindly invited The Day to attend the presentation of the federal government’s Transform Program that took place on October 23. Under this program a number of German firms have been providing consulting assistance to Ukrainian textile and sewing factories in order to increase their competitiveness. The new stage of the project envisages the formation of a Ukrainian garment workers guild, increasing the transfer of know-how, getting more Ukrainian manufacturers and designers involved in the process, expanding professional contacts between the two countries, and attracting new partners to project financing. The Germans are very serious about the project, considering that the KfW Reconstruction Credit Institution is officially responsible for its implementation, acting under the special authority of the Federal Ministry of the Economy. Herr Jurgen PINSKE, one of the project coordinators, told The Day that he was impressed by the high technical standard of many Ukrainian light industry enterprises and by their managers’ willingness to incorporate progressive experience. He believes that the privatization of light industry is making considerable progress, and that small and medium businesses are having a noticeable positive effect on economic progress. Thus he views the situation in Ukrainian light industry as not bad, “although it operates under the conditions of a quite complicated framework.” Leonid Havrysh, chairman of the board, Volodarka Public Joint Stock Company and head of the newly formed clothes-makers’ guild, considers that domestic light industry is forced to pay excessive taxes, so the guild plans to raise the matter of annulling VAT on technical equipment supplied from Germany.

Not all of the requirements pressed by enterprises in Ukrainian light industry can be considered market ones, especially when it comes to protection of the domestic market and manufacturer. However, the government, while proudly reporting GDP and industrial output growth, is in no hurry to comply even with officially supported proposals but promises to carry them out on a priority basis. Suffice it to recall the economic experiment to stabilize light industry performance in Chernivtsi oblast. Presidential edicts and a bill passed by Verkhovna Rada laid good foundations for solving the regional problem. The very first year of working in a new manner has yielded promising financial results. In a word, it turned out to be an example worth being followed by other regions. Liliya Kravchenko, head of the light industry department of Derzhprompolityka [State Committee for Industrial Policy], believes that the taxation pattern involved in the experiment is uncomplicated and transparent. The trouble is that the Cabinet seems to have forgotten about the said law in 2000 and stopped financing innovative projects, meager as such financing was. Will our German friends help?

Even if they do, such help would cut both ways. For example, Volodarka’s sewing factories receiving the consultation of German experts have managed to build production lines making pants and jackets over the past three years, resulting in a sharp increase in output and payroll. According to Mr. Havrysh, German consulting on marketing and economics has had a tangible effect, as Volodarka could now earn about one million hryvnias annually. German experts are also quite helpful in labor training. Anatoly Vostriakov, head of the Yunist Sewing Factory Public Joint Stock Company, also thinks highly of the German consultants. In his words, cooperating with leading Western firms helps his company use new promising materials and designs, as well as train personnel to operate on the domestic market, increase output, improve product quality, and change workers’ mentality.

The Day was told by one of Yunist executives that the company had been re-equipped during the final years of perestroika, although the workers’ mentality had not undergone any significant change. People still wanted to work the Soviet way, while being paid like in the West. A woman operating a production line complained that the work had become intolerable with the coming of foreign experts: their quality demands were too exacting. When asked what was wrong with requiring top quality, she replied, “Are we paid the way they are in the West to make such quality?” Here she had a point. According to the manager, the average pay ranges from UAH 370-400 a month, although women working the conveyor belts said that this was the upper margin, and that they received almost twice less.

One of the girls carefully examined a jacket she had just finished. And then she put it on.

“Do you want to buy it?”

“No, I’m just trying it on. I want to sew one for myself. I wouldn’t even think of buying it, not with the kind of money we’re paid.”

Other women workers also said they could not afford to buy any of the factory’s products.

However, even people of means do not buy Yunist clothes in Ukraine. Despite the manager’s assurances that only 70% of the clothes is exported, another factory executive, who preferred to remain anonymous, said it was actually 90%.

Perhaps our German friends will eventually make it possible for Ukrainian light industry to cater to the population? Mr. Pinske did not sound encouraging, “Rather than concentrate on such products appearing on the Ukrainian market en masse, suppose we approach the problem from a somewhat different perspective. How would it serve Ukrainian enterprises to supply primarily the domestic market? Mass output means mass purchase and mass investment — in other words, preconditions that the Ukrainian enterprises cannot afford at this stage. We assist them with gradually and carefully shaping a domestic market. The German textile industry is extensively using the opportunity to make products using foreign facilities and this also benefits local business.”

It is hard to disagree with this, but the Cabinet should have its own program for developing the industry under the circumstances. Light industry is known to have been the first to get back to its feet in all developing economies and crowd out foreign products (no thanks to government restrictions, of course). It is high time those in office realized that sewing factories operating on the give-and- take principle will never show steady progress or good profits. Experts in the field insist that stable added value can be expected only from full- fledged market production, all the way from paper design to cutting table to production line to store counter, on both the domestic and foreign market. Why does Ukraine still not have even one national clothing brand? Could it be because our nationally conscious government allowed our industry to be managed by foreign experts, people who are without doubt knowledgeable but still foreigners? People who are primarily (and most naturally) concerned with their own national interests? Ukrainian experts feel sure that solving this problem requires a different managerial mentality to take it beyond the bounds of provincialism. Economic measures must be taken to encourage competition with foreign trendsetters. And the latter are careful to take into account both propertied and average-to-low-income customers. After people living in Ukraine start wearing Ukrainian- made clothes, this country will be closer to the market economy than we are to our local street bazaar.