Macedonia's textile sector was no exception with regard to the overall steep downward trend of the 1990s. Employment in textiles and apparel, traditionally one of Macedonia's main industries, fell from 64,000 in 1989 to 26,000 in 2002 (CRPM). Yet in recent years it is precisely this industry, which has experienced high growth and job creation. The emergence of small private textile businesses in places like the eastern town of Stip raises hopes that the Macedonian economy can overcome the high unemployment and low growth that followed the disintegration of its socialist-era industries.
Today the textile and clothing industry is the largest industrial sector in Macedonia's economy. It contributes 21 percent of industrial GDP, 30 percent of industrial employment, and 33 percent of industrial exports (SIPPO 2003). In 2003 textile and apparel production contributed 12.5 percent to Macedonia's GDP. Production is spread across the country: there is a textile company in practically every large municipality.
Most of the clothing produced in Macedonia – 90 percent, according to the Macedonian Chamber of Commerce – is exported. Much of the production is "outward processing". Large international brands such as Gap, Levi’s, JC Penney or Tommy Hilfiger design clothes, but find subcontractors to do the actual "sewing and stitching". The international competition for such orders is intense and has led to repeated relocation of production. This is especially true of "light clothes", such as t-shirts, shirts and blouses, which require little skilled labour and entail low fixed costs. Most textile companies in Macedonia are engaged in outward processing production, exposing them to considerable risks. Lower labour costs in other parts of the world could cause big-brand manufacturers and retailers to relocate, be it to Cambodia, Vietnam or Moldova. This means that profits for Macedonia's clothing companies are small and wages low. A typical textile worker’s monthly wage, €150, is considerably lower than in socialist times.
One way for textile companies to reduce their vulnerability and increase profits and salaries is to move up the value-added chain towards more sophisticated own-brand products. "Heavy" clothing, such as jackets, coats and work-wear, involves higher transport costs, more skilled labour and greater capital investment – production, therefore, is less likely to be relocated at the drop of a hat. At present, however, only few clothing companies specialise in "heavy apparel" (CRPM).
The biggest profits in the clothing industry are made by companies that successfully distribute clothing under their own brands. This requires more capital and greater expertise in designing, marketing and retailing. Yet the success of brands such as Serbia’s "Jagger" and Turkey’s "Mavi Jeans" shows that upgrading is possible. In Stip, the most successful company producing branded products is EAM, which exports to Germany, Switzerland, Croatia, Slovakia, Bosnia and Kosovo.
Unless Macedonian textile companies can upgrade to more sophisticated production, they face an uncertain future. As cheap labour grows scarce in places like Stip, local managers fear that they may lose their ability to compete. Some predict that EU membership will mean the end of low-skilled textile production. Macedonia may be unable or unwilling to compete in what is sometimes referred to as the global "race to the bottom" in textile production.
For the time being, the textile boom has invigorated the economy and provided much-needed jobs. Even if this growth is not sustainable in the long term, it may contribute to Macedonia's economic development in a wider sense. The emergence of independent private firms and entrepreneurs with the capital and the managerial experience to seek new opportunities can only be positive. Macedonia's new businesses are more flexible and adaptable than their bankrupt socialist predecessors. Sasko Miladinov, whose clothing company employs 450 people, says:
"[EU membership] will make it more difficult, because many companies will come to invest in Macedonia. It will then be more difficult to find workers. We already have problems finding workers, but then it will be much more of a problem: the textile industry will slowly decline and Macedonia will develop another kind of business. This is why, when we built the new building, we made it 7 ½ meters high. In the future we can use this building for other industrial purposes."