FORESTSIDE, Mauritius Dec 18 Textile firms in Mauritius that supply some of Europe's biggest high-street stores are bracing for a tough 2009 as the global financial crisis tips developed economies into recession.
Already faced with the end of European preferential trade deals, the Indian Ocean island's clothing companies have been hit this year by surging oil prices and an appreciating rupee, and now the global slowdown looks set to hit orders and profits.
"This is certainly the toughest I have seen it during the 20 years I have been in the trade," said Harold Mayer, CEO of Ciel Textiles FKL.MZ.
According to the Central Statistics Office, textiles contribute 6.5 percent of gross domestic product, account for 11 percent of employment -- and in the first nine months of 2008 textiles made up nearly 42 percent of exports from Mauritius, worth $550 million.
Ciel Textiles produces T-shirts and shirts for stores such as Marks & Spencer Group Plc (MKS.L) and Next (NXT.L) in Britain and Spanish fashion chain Zara, which is owned by Europe's biggest clothing retailer Inditex (ITX.MC).
"Most of our retailers are in Europe, some are in the U.S., and their sales have on average dropped by 10 percent. To compensate for this fall in sales, they are fighting for better prices," said Mayer, adding that he expected the middle market to be worst hit.
Ciel Textiles announced a 73 percent slump in post-tax profits for the year ending June 30, 2008 to 126.7 million rupees ($3.89 million) compared with 461.2 million for the same period last year, according to a company report.
Listed on Mauritius' secondary Development and Enterprises Market, Ciel Textiles has seen its earnings per share drop to 1.12 rupees this year from 4.40 a year ago.
But manufacturers say it is nearly impossible to offer any price discounts while the Mauritian rupee remains so strong against the hard currencies of trading partners.
"We have been howling since the beginning of the year that the central bank's monetary policy is unacceptable," said Mario Julienne, CEO of the Corona Clothing Company, which produces top-end suits and jackets for the London market.
Despite remaining bullish about the company's orders for next year, Julienne says the textile industry has found itself at the mercy of a central bank "fascinated by inflation" at the expense of growth and the currency's value.
"The challenge has been dealing with a rupee made to appreciate against hard currencies. It's been traumatic. The currency just eats your profits away," Julienne said.
The local currency has weakened slightly this month against the euro EURMUR=R to 46.70 after the central bank cut its benchmark interest rate 100 basis points to 6.75 percent. It hit a year high of 36.04 in May.
Against the British pound GBPMUR=R the rupee has climbed from 64.63 at the start of 2007 to a high of 45.47 in May.
The central bank hiked rates to 8.25 percent in July, saying the risks to inflation were greater than the risks to growth and despite recent cuts insists its focus should be on the inflation rate, which was running at 9.9 percent in November.
While Mauritius's textile sector has a reputation for quality and reliability, it faces competition from countries like Turkey and India which have weak currencies.
Textile manufacturers welcomed the December rate cut, but want further cuts to weaken the currency significantly. (Editing by David Clarke and Rupert Winchester)