After a decade of civil war, UN trade embargoes and Nato bombardments, Yugoslavia's clothing industry could once more be poised for growth, says the latest issue of Textile Outlook International.

Up to the early 1990s, the country was a major manufacturer of clothing for leading West European companies. But the conflict and ensuing trade restrictions brought all that to an end. Most of the country's infrastructure fell into disrepair. However, the downfall of Milosevic has ushered in a new era of peace, stability, economic growth and foreign aid.

Yugoslavia's textile industry has a lot to offer potential business partners in Western Europe, says Textile Outlook International. The industry employs skilled workers, pays very low wages, has years of experience in making clothing to West European standards, and has retained a strong knowledge base -- supported by textile technology centres in Belgrade and Lipovac. The industry also has a good mix of production facilities, ranging from small operations -- usually private -- to very large state-owned companies.

One of the industry's main problems is low capacity utilisation. Overall, this is estimated at less than 30%. Another is the fact that workers in state companies are kept on the pay roll -- whether or not they are productive.

But for Western firms, the industry offers very low wages. In state owned companies most workers earn only US$30-US$50 a month. Foreign customers seeking CMT (cut, make and trim) contracts are able to negotiate prices of less than US$0.065 per minute. Furthermore, Yugoslavia offers potential investors and customers easy access by road to Western Europe and the Middle East.

Until the early 1990s, Yugoslavia was one of the EU's most important locations for outward or offshore processing. German firms, in particular, made extensive use of the country's manufacturing facilities. But since the 1990s, Yugoslavian companies have lost business to competitors in Romania, Bulgaria and other low-wage countries.

Output in the textile and clothing industry has dropped to an alarmingly low level. Nonetheless, the sector still employs 120,000 people in a country with a population of only 10.6 million, which suggests that it has managed to retain much of its skills base and therefore has the capacity for growth.

Yugoslavian textile and clothing companies have developed extraordinary survival skills over the last decade -- including a strong ability to counterfeit popular Western garment brands.

But many companies face severe financial difficulties. With little investment over the last decade, much of the machinery in Yugoslavian factories is obsolete. Factories desperately need fresh investment in order to be able to comply with West European quality requirements.

Fortunately, the international community is stepping in with measures to help. All UN sanctions have now been lifted. In June 2001, as much as US$1.3 billion in aid was offered by international donors for Yugoslavia's economic rehabilitation. The IFC (International Finance Corporation) has been studying the textile industry in Yugoslavia with a view to recommending investment by foreign as well as Yugoslavian firms. Meanwhile, EBRD (European Bank for Reconstruction and Development) has been talking with Beko, the largest clothing manufacturer in Belgrade, and with several other big clothing companies.

But many Yugoslavian textile companies face a gloomy future unless they can find financially strong foreign partners. Many are planning to downsize significantly -- such as the vertically integrated giant Yumco, which has 10,000 workers in 13 factories. Kluz, with 4,600 workers in six factories, is considering selling its women's wear production facilities in order to concentrate on the technically more difficult but more profitable manufacture of men's suits.

Those who are best placed for the future, says Textile Outlook International, are well-equipped fashion-oriented private companies which have established strong brands -- including Afrodite, Cinderella, Mona, Nicola's, St George, STEM, Tiffany, Todor, and Uno Martin. These companies are flexible and keep in close touch with global fashion trends. Also, rather than have capital tied up in obsolete factory buildings and machinery, many subcontract their production to other firms. Some of these companies are formulating ambitious export plans.

Yugoslavia is in the midst of a major transition from war to peace, and from isolation to re-integration in the world economy. To compete in the world market, Yugoslavian companies will have to attract the necessary foreign investment.

For their part, would-be foreign investors would have to be prepared to supply machinery, yarns and fabrics. But Yugoslavia's low wages, ample human resources, good skills base and proximity to West European markets could provide them with ample rewards over the short to medium term.