By Max-Emanuel Hatzold
Remaining competitive in the textile business is not easy, as it is an industry with low barriers to entry and intense global competition. As a result, profit margins are typically low.
That’s why companies like Vicunha Ecuador S.A., one of the country’s oldest textile manufacturers, need to constantly invest in growth, efficiency, and productivity. At the same time, they must remain attractive to employees in a sector where employee turnover is high.
In support of Vicunha’s efforts to address these issues, the IDB financed two non-sovereign guaranteed (NSG) operations: a total of US$ 20 million A-loan, and US$15 million B-loan.
The Bank also provided technical assistance to expand production, modernize equipment, and increase the firm’s capacity to generate green energy.
By supporting Vicunha’s purchases of new machinery, upgrades to its hydropower plant, and the introduction of its new denim production lines, the IDB has helped foster the company’s growth.
These investments have led to the creation of 135 new formal jobs since 2010. In addition, the company has improved its manufacturing process and quality control, which has helped it gain access to more sophisticated markets and reduce production costs.
Vicunha has increased denim production by 58 per cent since 2010 and can now generate 86 per cent of its energy demand, an improvement in energy self-sufficiency that prevents the emission of approximately 17,000 tons of CO2 per year.
The IDB’s partnership with Vicunha has also yielded development benefits that extend to the community in Pichincha Province where the company is located.
The IDB’s involvement facilitated a collaborative agreement between Vicunha and a local women’s association called ASOCONFEC.
The objectives of this agreement were to foster employment for women and economic development in the province of Pichincha; promote the production and commerce of Ecuadorean goods; and incorporate vulnerable populations into the value chain of denim manufacturing.
Vicunha provided workers from ASOCONFEC with the raw materials (denim fabric) they needed to get started, and trained them to make garments using industrial machinery for clothing manufacturing.
As a result of this collaboration, more women in Pichincha are joining the labor force and gaining access to better-paying jobs.
Nearly 500 women have received training, and 75 per cent of them are working for local companies or have launched their own small businesses.
The Vicunha Ecuador S.A. project sets an example of how IDB-financed operations can foster employment opportunities, particularly for women, even in challenging sectors like textile manufacturing, by supporting local companies to engage with the community.
This story is one of the impact evaluations included in the Development Effectiveness Overview, an annual publication that highlights the lessons learned from IDB projects and evaluations.
About the author:
Max-Emanuel Hatzold is finance and investment consultant in the Development Effectiveness Division of the Inter-American Investment Corporation.