At the end of 2016, after years of churning out the latest creations of mainly British fashion brands, Alin Benta turned out the lights at his textile factory in Romania’s second city of Iasi.

When it reopened in early 2017, Benta was producing upholstery for Swedish IKEA. The reason? Brexit.

Overnight, as the pound went into freefall on the back of Britain’s shock vote to leave the European Union in June 2016, Benta saw his profits evaporate.

Like many of Romania’s roughly 4,500 textile factories – employing more than 200,000 people in one of the EU’s poorest countries – Benta’s operation relied heavily on British clients who paid in pounds.

As sterling tanked some 20 percent against the Romanian lei, the factory’s monthly earnings fell by 50,000 lei (9,400 GBP) – “money for salaries, taxes, utilities,” Benta said.

Faced with the risk of penalties if he failed to meet year-long contracts, Benta boarded a plane to London to renegotiate with intermediaries who stood between him and the buyers. Quickly rebuffed, Benta took a bank loan to pay salaries until the end of 2016, and when the contract finally ended, he switched to Swedish furniture.

“It was the tipping point,” he said of Brexit.

Benta was fortunate to find IKEA. But for Romania’s precarious garment industry, once a symbol of Eastern Europe’s mad rush to lure Western cash with the promise of cheap labour after the fall of the Berlin Wall, Britain’s vote to leave the EU has hurt.

Dire working conditions

For years, Britain was consistently one of the biggest importers of clothes made in Eastern Europe. The relationship has been in decline in recent years, a change factory owners blame on the stubbornly low prices paid by British brands.

Since Brexit, British brands have resisted passing the cost of the pound’s fall in value onto shoppers; in an industry where margins are tight and every penny counts, that has left some Romanian factories scrambling to increase production to cover lost earnings and searching for clients elsewhere in Europe, according to interviews with more than a dozen factory owners and industry leaders.

The industry was already struggling with intense competition from Asia, a high turnover of workers leaving for Western Europe in search of better pay and working conditions, and the lack of bargaining power that comes with being at the very bottom of the supply chain.

The increased price pressure threatens to worsen already often dire working conditions.

In mid- 2017, a video emerged online appearing to show the manager of a factory in Romania’s southern Prahova county verbally abusing and threatening employees who had complained about the late payment of wages. The factory at the time worked mainly for British clients.

The video was filmed by a woman who worked at the factory but later quit along with her husband.

“Because the pound dropped, they increased production quotas,” the woman, who gave her name as Rodica, told BIRN, describing long hours of grueling work without breaks. “We had to produce more for the same money,” she said.

Aurelian Ciobotaru, a factory owner in Iasi. Photo: Razvan Leucea

Aurelian Ciobotaru, a factory owner in Iasi, said negotiations with British brands had become “crazy”.

Factory owners considered themselves lucky if they could charge 15 times less than the price British shoppers eventually pay for an item of clothing.

“There are still factories manufacturing trousers for a little over one pound,” the broad, blond-haired 44-year-old told BIRN. “I don’t know how they can manage.”

Ciobotaru has tried to focus more on higher-end British brands that pay better than high street names, and on finding clients elsewhere in Western Europe, such as France.

But even then, he said, his profits have shrunk to around five percent of revenues, compared to 10-15 percent when business was better.

Ciobotaru said he can only pay above the minimum wage – now 250 euros per month after tax – to around half of his 200 employees.

The average salary in the garment manufacturing industry in Romania was around 300 euros per month in 2017, less than the average estimated expenditure of a Romanian household of 550 euros, according to the National Institute for Statistics.

“A garment worker should receive a decent salary, but I can’t see how,” said Ciobotaru.

His efforts to renegotiate the price were frustrated by the intermediaries who stand between such small factories and the big Western fashion labels.

“The brands never lose,” he told BIRN. “Why would they pay me more in Romania when they can simply move to Asia?”

BIRN contacted a number of British fashion brands known to have contracts with Romanian factories to ask about pricing policy post-Brexit and whether trade volumes have changed.

Of those that replied, Topshop said it was unable to provide any information while Debenhams said it only sourced 3 percent of its products from Romania and anyway could not comment on commercial agreements. Burberry, Arcadia Group and French Connection did not reply.

Cut-throat competition

Worker at Aurelian Ciobotaru’s factory. Photo: Razvan Leucea

Romania’s garment factories are one cog in the cheap labour economic model that took root in ex-Communist Eastern Europe after the end of the Cold War.

But while in recent years, workers at hi-tech car plants in the likes of Slovakia, Poland and Hungary have used their bargaining power to extract higher wages from foreign auto giants, Romania’s garment factories have very little leverage.

It is expensive to move car production elsewhere, but not so the sewing of clothes.

“Mass brands look for low prices,” said Mihai Pasculescu, head of the Romanian Textile and Leather Federation. So, said Ciobotaru, “the one who sets the lowest price takes the order.”

Even the bigger factories which get to cut out the middlemen and negotiate directly with British clients have fared little better.

“The negotiations went very badly,” said Elena Stoica, president of the Romanian Manufacturers Association and owner of two factories employing about 1,000 people in total in Vrancea County in eastern Romania. “Some (brands) agreed to support us, but many didn’t.”

Even those clients who agreed to pay more did not fully cover the cost to the factories of the fall in the pound, Stoica said.

“It was a shock that we had to continue delivering” at lower prices, Stoica told BIRN. Her business had to raid cash reserves earmarked for maintenance and investment in order to pay salaries and, like Ciobotaru, she is looking for clients elsewhere in Europe.

“For the future of the business, this was really bad,” she said.

“I used to produce 80 percent for the UK and 20 percent for the rest of Europe,” pre-2016, Stoica said. “Now I have 55 percent for the UK and 45 percent for the rest of Europe. I have shifted about 30 percent towards other European markets with payment in euro.”

Data from the Romanian Ministry of Commerce and the British Romanian Chamber of Commerce demonstrates a steady decline in the number of orders placed by British brands with Romanian factories over the past several years.

The hit from Brexit will only shows in the statistics in the next couple of years, said Pasculescu, as factories try to switch clients. “It takes 2-3 years to rebuild,” he told BIRN.

Middlemen

Workers at Aurelian Ciobotaru’s factory. Photo: Razvan Leucea

The blow from Brexit has exposed the precarious nature of the textile industry in Romania.

The market is dominated by small or medium-sized factories which remain dependent on middlemen and have minimal bargaining power. Brands can simply take their business elsewhere, at little upheaval or cost.

“There is no way for the garment industry in these countries to upgrade,” said Bettina Mussiolek, Coordinator for Eastern Europe and Turkey at the Clean Clothes Campaign, an alliance dedicated to improving working conditions in the global garment industry.

“It’s a real trap both for the national economy and the factories. And it’s a social disaster because only poor wages can be paid and workers face extremely bad conditions.”

Conditions worsen the lower you go in the supply chain.

Big factories, which face outside monitoring of working conditions, frequently pass orders down to smaller factories, even to tiny, apartment-based operations where oversight is minimal or non-existent.

For smaller factories to grow, move up the hierarchy and secure better prices, they need to be certified. But many cannot afford the investment necessary to secure certification.

Octavian Benga, a 35-year-old former factory owner, said big Western brands knew their orders were being subcontracted, “but turned a blind eye, otherwise their profits would have been affected.”

Three social auditors of Romanian garment factories BIRN spoke to concurred; studies by the Clean Clothes Campaign also support such a theory.

“We managed to survive the depression, but now Brexit might kill us.” Aurelian Ciobotaru

Small and medium-sized operations account for about 95 percent of the factories in Romania, according to government figures.

Those that cannot afford to get certified and remain reliant on intermediaries will likely go out of business, as has happened in Asia, said Junger Janssen, program director at the Partnership for Sustainable Textiles, created in 2014 at the initiative of the German government in response to a spate of deadly accidents at textile factories in Bangladesh.

“I think that five years ago it was completely fine to source everything from an agent,” he said. “But it is not working anymore,” Janssen told BIRN.

Pasculescu, the head of the Romanian Textile and Leather Federation, said that while Brexit indeed marked a “tipping point” in terms of forcing factories to look elsewhere beyond Britain, garment production in Eastern Europe was still competitive with increasingly expensive rivals in China and had the advantage of proximity to Western markets. The industry was not about to fold, he insisted.

But Ciobotaru was pessimistic:

He said he had been hit several times by waves of workers quitting and leaving for Western Europe in search of better pay. Between 2007 and 2015, an estimated 3.4 million Romanians have left to work abroad, putting the country second after Syria in terms of migration rates, according to the United Nations.

“We managed to survive the depression,” said Ciobotaru, “but now Brexit might kill us.”

Article was enabled through the Balkan Fellowship for Journalistic Excellence Alumni Programme.

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