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The findings of the new commodity market outlook report regularly published by the World Bank do not look promising at all. In addition to rising energy and food prices, other commodity groups should also be prepared for rising prices. The war in Ukraine has negatively affected the commodity markets, changing global trade, production and consumption patterns, with prices set to remain at historically high levels until the end of 2024, according to WB analysts.

Cotton and textiles prices are among the products set to soar in the coming months. So governments should already be thinking about stocking up on this group of goods as well.

Meanwhile, the development of cotton production has been one of the key areas of agricultural reform in Azerbaijan over the past few years. Can we go further and achieve self-sufficiency not only in raw materials, but also in finished products made from them - textiles?

Crisis of supply

WB experts expect cotton prices to rise by almost 40% in 2022 and then fall by 6% in 2023 as weather-related problems abate. The report notes that there are many factors contributing to rising cotton prices. For example, increased demand after lockdowns, especially in China. Meanwhile, global cotton production, mainly in Brazil and the USA, which are the largest exporters (around 20% each) of this product, will increase by 8.4%.

The World Bank report shows that cotton prices continued the upward trend that started at the beginning of May 2020 and reached an 11-year high in March 2022. Global demand this season is expected to average 26.2 million tonnes, up 2% from 2020-2021.

The war in Ukraine has left Russian textile processors without raw materials – they cannot get 85% of previous imports into the country due to sanctions. The shortage has led to a threefold increase in prices for Russian secondary textiles. According to market participants, Russia now needs to increase collection of old clothes by 7 times, similar to the waste paper collection system, but this will take years.

An unfavourable external market environment will undoubtedly affect all countries importing raw materials, textiles and finished textile products. However, in cotton-producing countries  the textile industry has great prospects.

Thus, yarn and fabric production account for about 80% of the added value of the final end product, whereas cotton fibre production accounts for about 10%. You don't have to be an expert to realise that yarn is much cheaper than fabric, let alone a finished product made from it.

Unfortunately, raw cotton and partly yarn still account for the lion's share of Azerbaijan’s exports, with the finished products making up only less than a quarter of this volume. Given the global demand for cotton, there has been a tangible increase in raw material supplies from the country. As noted in the Export Review of the Centre for Analysis of Economic Reforms and Communications, last year Azerbaijan exported cleaned seed cotton worth $208 million (+57.7%), while at the end of 1Q2022 this indicator was $72.2 million. By the way, cleaned cotton is ranked the first in the list of non-oil exports (4th in 2019).

Meanwhile, according to official statistical data, domestic textile production decreased by 11.2% in January-April 2022. Clothing production increased by 55.4% in the same period, but using the yarn imported from China, Turkey, and Ukraine.

From raw materials to finished products

During various events held in recent years, President Ilham Aliyev has repeatedly stated the importance of increasing the share of processed products, export of cotton yarn, fabrics, as well as finished textiles and garments.

Undoubtedly, there was certain progress in this area over the past decade. Thanks to investors attracted to technoparks and industrial quarters, there is an ongoing development of sectoral industrial base in Azerbaijan. These measures have made it possible to establish weaving and garment factories in Sumgayit, Mingachevir, Baku and other cities. In particular, the Mingachevir industrial park, which is focused on textiles, has been able to launch production thanks to tax and customs preferences effective since 2018.

Sakina Babayeva, vice president of the Association of Producers and Exporters of Textiles, believes it is necessary to increase the stock of raw materials and production volumes to meet demand as soon as possible, taking into account external negative factors.

"There is a large amount of cotton growing in Yevlakh, Goranboy, Barda. We do not need to import raw material from distant locations. Many specialists have long insisted on the need to establish a full production cycle. Garabagh will have all the potential for this. At the same time, it is not necessary to produce something complicated; it is better to launch the production of fabrics, as well as sewing simple and popular items like socks, shirts, bedclothes, etc.," Babayeva said.

She believes that Azerbaijani textile producers could supply raw materials from Central Asia, particularly from Uzbekistan. This would not only meet the demand in the local market, but also help export finished products. "This situation can be a real chance to access new markets," Babayeva said.

She assured that the dependence of Azerbaijani textile processors on Russia is not that high. Moreover, Russia can buy Azerbaijani products, while our manufacturing enterprises should try to meet this demand.  This requires a number of new processing facilities: "If there is a shortage of such production facilities, we will have to process local cotton in neighbouring countries. We should join forces with Turkey, solve logistical problems and export in order to get access to the wide Russian market.”

Since Azerbaijan is an oil-producing country, it can start producing synthetic yarns. Babayeva believes that Azerbaijani producers have a good opportunity to get this niche in the market as well.

Meanwhile, Ilhami Ozturk, chairman of the board of the Turkish Association of Businessmen and Entrepreneurs (TÜMKİAD) said that at the initial stage Turkish companies plan to invest $50 million in the construction of textile plants in the liberated territories of Azerbaijan.

Nariman Aghayev, chairman of the Sustainable Development Research Centre, believes that the development of the consumer goods industry in Garabagh looks promising. It is possible to create up to 10,000 jobs in the territories liberated from the occupation. In his opinion, in addition to cotton fabric it is also possible to produce silk thanks to the rehabilitation of silk cultivation in this region.

In general, the industry, according to Aghayev, can become profitable in a short time, unlike high-tech products: "We need to borrow Turkish experience, because the Turkish consumer goods industry is one of the leading industries in the world.”

By the way, by adopting the experience of Turkish specialists, Azerbaijan can help the textile industry in Turkey with the supply of raw materials. We do not produce similar volumes yet, but we can provide logistics for deliveries from Turkmenistan and Uzbekistan. The plants and factories operating in these countries use high technologies and produce yarn and fabrics, hence they can become a good source for raw materials for Turkish brands.

There are plenty of options for Azerbaijan to fill vacant niches in the textile industry. It's time to turn this crisis into opportunity.