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USA/Africa: Textile Meltdown?

AfricaFocus Bulletin
Feb 1, 2005 (050201)
(Reposted from sources cited below)

Editor's Note

U.S. imports of apparel from Sub-Saharan Africa rose in 2003 and 2004 to more than $1.5 billion a year, benefitting from duty-free access under the Africa Growth and Opportunity Act (AGOA). This year, however, with new competition from China and India expected after abolition of quotas under the international Multi-Fiber Agreement, textile industries in African countries face the prospect of rapid decline in export potential.

Textile companies in countries supplying the United States, including Lesotho, South Africa, Mauritius, Madagascar, Kenya, and Swaziland, are already laying off workers or shutting down entirely. Textile imports under AGOA are little more than one-tenth of U.S. imports of oil and other energy-related products under the Act. But they were widely heralded as showing that African countries could break into exporting manufactured goods as well as raw materials.

Manufacturers in the U.S. have also expressed alarm that low-cost and efficient Chinese producers will dominate the world market, and are seeking concessions to slow the impact of dropping quotas. Christian Aid released a report in January warning of the threat to the garment industry in Bangladesh. But so far, despite earlier enthusiasm from both the U.S. administration and Congress for AGOA, there has been no public discussion of the fact that new jobs touted as progress for the initiative are already disappearing.

This AfricaFocus Bulletin contains news reports from the UN's Integrated Regional Information Networks on the crisis in the textile industry in Swaziland and Lesotho, excerpts on the effects of the quota elimination on Africa from a study last year by the U.S. International Trade Commission, and links to other articles referring to the impact in Kenya, Mauritius and South Africa.

For more information:

http://www.agoa.info
The most comprehensive source of news and statistics related to the US Africa Growth and Opportunity Act (AGOA). Includes convenient access to monthly trade data through November 2004.

http://www.agoa.gov
The official U.S. government site

http://www.usitc.gov
U.S. International Trade Commission
Latest full report on U.S. Trade and Investment with Sub-Saharan Africa, released in January, available at
http://hotdocs.usitc.gov/pub3741/pub3741_main.html

http://www.christian-aid.org.uk/indepth/412rags
Rags to Riches to Rags, December 2004

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Swaziland: Huge Job Losses Feared in Garment Industry

UN Integrated Regional Information Networks
http://www.irinnews.org

[This report does not necessarily reflect the views of the United Nations]

January 31, 2005

Mbabane

The Swazi government estimates that a third of all garment industry jobs will be lost by mid-year due to the crisis facing textile firms.

"The textile industry created 45,000 jobs in 2001 and 2003. Fifteen thousand jobs will be lost from last year to June this year [2005]," Enterprise and Employment Minister Lutfo Dlamini told a meeting of the Swaziland Textile Exporters Association last week.

Robert Maxwell of the textile exporters association said none of the 10 major textile companies in the country, which are largely Taiwanese-owned, had received orders for the second quarter of 2005. Some factories closed for the holidays at the end of 2004 and have yet to reopen.

Swaziland's clothing industry took off in 2000, when Asian investors opened factories to take advantage of the US trade benefits from the African Growth and Opportunities Act (AGOA).

AGOA permits Swazi exports to enter the American market without paying import taxes. However, that price advantage has been cancelled out by a 50 percent rise in the value of the South African rand against the US dollar. The Swazi currency, the lilangeni, is linked to the rand, making Swazi exports costlier to American buyers.

Compounding these problems, the World Trade Organisation's Agreement on Textiles and Clothing ended US quotas from 1 January 2005, meaning that textile giants like China now have freer access to the US market. Asian companies had set up shop in Swaziland to use AGOA to sidestep quota restrictions.

"The Chinese have the price advantage because of low wages - a Chinese worker gets about R427 (US $71) a month; a Swazi worker earns twice as much: R915," Maxwell explained.

Swazi labour unions complain that garment workers can scarcely scrape by on their salaries, while being subjected to unhealthy working conditions. Cultural misunderstandings have also led to shop-floor conflict.

"The [Taiwanese] live above the factory in a hostel on the second floor - they want nothing to do with Swazis," said Thuli Gule, a seamstress at a factory in Matsapha outside Manzini, the country's commercial capital.

Last month Taiwanese managers at one factory were attacked by 450 workers striking for better salaries and working conditions. All strikers were fired.

Gule said complaints about unfriendly Taiwanese managers among her co-workers have diminished in light of recent worries that the factories will shut down.

"I have heard that a half a loaf is better than none. I don't know if that's a Chinese expression, but it's true," Gule said.


Lesotho: New Trade Regime Threatens Economy

UN Integrated Regional Information Networks

January 13, 2005

Johannesburg

About 7,000 clothing and textile workers face a bleak year after three factories in Lesotho failed to reopen after the festive season.

The impact of the closures on the tiny mountain kingdom, one of the least developed countries in the world, will be significant.

Deputy general-secretary of the Lesotho Clothing and Allied Workers Union, B. Shaw Lebakae, told IRIN that the end of quotas for cheap imports to the United States from Asian countries would cause more foreign factory owners, originally from Asia, to reconsider the location of their businesses.

Although Lesotho still enjoys duty-free access to the US market under the Africa Growth and Opportunity Act (AGOA), goods manufactured in countries like Lesotho will probably be more expensive for US importers than goods from countries like China, which are able to achieve superior economies of scale, Labakae added.

The end of the World Trade Organisation (WTO) Agreement on Textiles and Clothing (ATC) on 1 January 2005 means access to US markets will no longer be restricted by quotas.

"Given the end of quotas and the WTO allowing China and India back into the market [unrestricted, except by general rules and disciplines embodied in the multilateral trading system], we believe most of the foreign-owned textile companies in Lesotho will relocate back to their original countries. They were in Lesotho to utilise AGOA and [get around] those ATC quota restrictions," Lebakae explained. "All these companies come from the East, as does the fabric and the yarn used in Lesotho."

AGOA, which has been extended until 2007, benefited Lesotho's economy. "Before AGOA there were around 20,000 people employed in the textile industry; with AGOA we have 56,000 people employed in the industry," Lebakae pointed out.

The International Monetary Fund (IMF) recently noted that the textile and clothing industry had been the key engine of growth in Lesotho's small economy. But the country is facing mounting challenges, including increasing global competition as export quotas for textiles and clothing are phased out, a decline in miners' remittances from South Africa, the fragile food situation, and the HIV/AIDS pandemic.

Lebakae said one of the three factories was placed under liquidation in December, while the other two closed for the holiday period and have simply not reopened.

The government of Lesotho has offered various incentives to foreign investors in the textile sector, and authorities are to address the latest closures soon, an official of the Lesotho National Development Corporation told IRIN.

The main repercussion of the closures "is, as usual, a loss of jobs", the official commented. "The minister is going to make a press statement tomorrow. We know one factory had financial problems - we don't know why the others have not opened, because when we closed for the holidays they had applied for additional factory space. We are still trying to get into contact with these guys to find out why they have not reopened."

Lebakae believes that, with the end of the ATC, the Asian giants are "going to compete with least developed countries [such as Lesotho] and it's of great concern. A lot of people are going to lose their jobs - even the informal sector will suffer".

He noted that "in terms of salaries, textile factories pumped Loti 40 million [US $6.7 million] into the economy, so we think it [the closures] will have a very negative economic impact".


Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the U.S. Market

US International Trade Commission
January, 2004

[Excerpt: for full report see
http://hotdocs.usitc.gov/pub3671/pub3671_I.pdf]

Sub-Saharan Africa

According to industry sources, sub-Saharan Africa (SSA) is not a particularly low-cost area for production of textiles and apparel, given the labor costs, low productivity, long lead times, and high cost of other inputs compared with those in Asia. Most companies located their production in SSA because of quotas on other suppliers. These quotas, combined with duty-free, quota-free access to the EU and, since October 2000, to the U.S. market, has led to increasing exports of mainly apparel items from SSA. Most companies interviewed indicated that because of the importance of quotas, it will be difficult for SSA to compete in a quota-free world. They indicated that EU and AGOA preferences will not be enough to keep the industry competitive except in the area of manmade-fiber and wool apparel, where SSA is competitive and U.S. duties are high. A number of SSA companies reported they are already losing sales in the EU market to countries such as Bangladesh, even with EU quotas in place. Most SSA firms view vertical integration as the means of survival in a quota-free world.

Business Climate, Infrastructure, and Proximity and Access to Markets

The political and business environment in the major SSA countries producing textiles and apparel is generally considered safe and secure. However, U.S. retailers have indicated that they will not send staff to countries where terrorism may be an issue, and this may affect countries such as Kenya. A benefit of AGOA is that the beneficiary SSA countries have had increased technical assistance and contact with U.S. Government agencies and companies. SSA countries exporting to the United States under AGOA have had to improve customs procedures and transparency, including adoption of procedures to prevent unlawful transshipments and the use of counterfeit documents. Many companies operating in the region believe that these changes have improved the business environment for textile and apparel exports. ...

The United States and the EU provide preferential market access to qualifying textile and apparel articles from eligible SSA countries. ...

Companies in SSA indicated that both U.S. incentives under AGOA and the restrictiveness of U.S. quotas on imports of textiles and apparel from non-SSA suppliers have provided a significant impetus for expanded exports to the United States. However, most companies pointed out that the quotas on non-SSA suppliers were the most important policies making it economical to locate textile and apparel production in SSA and to export. Many companies indicated that retailers were increasing their purchases of apparel from SSA under AGOA because they do not have to pay duty, but without quotas on non-SSA suppliers, the absence of duties likely would not retain SSA's competitiveness, except in cases where U.S. duties are relatively high.

The importance of the U.S. market to SSA was stressed by a number of companies. These representatives noted that growth in EU imports of textiles and apparel from non-SSA suppliers, particularly Bangladesh, under the Everything But Arms initiative has made it difficult to compete in the EU market. The companies noted that the implementation of AGOA in 2000 served to provide a new outlet for SSA apparel exports at about the time export sales to the EU were starting to slump.

SSA has a number of disadvantages in terms of logistics and infrastructure. Buyers and companies in Mauritius cited the long shipping time to the U.S. market as a significant disadvantage. For example, one buyer in Mauritius noted that it can take up to 43 days to ship apparel to the U.S. market, (which travels via Durban and Capetown, South Africa). ...

Shipping is shorter in terms of time, and more frequent in occurrence, from southern Africa, about 21-30 days. Shipping times were not cited as a particular disadvantage by companies operating in South Africa, although one company in Lesotho noted that it was starting to lose orders for basic trousers to Mexico, which has much shorter shipping times. Longer lead times mean that SSA products will be largely confined to "basics" that do not depend on quick changes in fashion. These are also the types of products that can be produced in China, India, Bangladesh and other Asian countries very competitively. ...

Labor and Management

With the exception of Mauritius, SSA has abundant labor for production of textiles and apparel. In SSA countries other than Mauritius and South Africa, factory ownership and most of the management are controlled by foreign interests, largely from Asia. Mauritius is labor constrained for expansion of textiles and apparel. It is reported that workers in Mauritius increasingly prefer to obtain jobs in high tech areas and that it is difficult to retain workers in the textiles and apparel industries. Approximately one-third of the workforce in textiles and apparel in Mauritius is foreign workers, largely from Asia.

Wages for textile and apparel workers in SSA are highest in South Africa and Mauritius, and tend to be much lower in other SSA countries. Workers in South Africa are highly unionized, resulting in the highest average wages for workers in this sector in SSA. Most companies interviewed indicated that workforce skill levels and labor productivity on average are lower in SSA than in Asia. For example, productivity in making basic trousers in Lesotho is estimated at 70 percent of that in Taiwan, and the rate falls to 50 percent or less if the style of the trouser is changed. Most companies interviewed noted that SSA countries will have difficulty competing with Asia in global markets following quota elimination in 2005 either because their wages are high (South Africa and Mauritius) or because their low productivity, combined with the cost of other raw materials, offsets their low wages (for example, Lesotho, Madagascar, and Swaziland).

Raw-Material Inputs

Companies interviewed in SSA noted that the competitiveness of the region's apparel industry is undermined by the limited availability and high cost of regional inputs, compared with countries such as China and India. ...

In addition to cost differentials, concerns have been expressed about the small variety of fabrics that can be produced in SSA, compared with Asia. This is considered an important disadvantage for the region, as buyers and fashion dictate the type of fabrics used. ...

Another important disadvantage, particularly in Mauritius, is the lack of ability of SSA countries to produce the volume of apparel that can be produced in China and India. Many companies in SSA expressed concern that as buyers reduce the number of countries from which they source following the phaseout of the quotas, SSA will be left out as buyers work to eliminate sourcing costs by purchasing from larger suppliers. The volume disadvantage was particularly cited in the context of the U.S. market, as the EU market generally demands smaller quantities on a flow basis.

Level of Service Provided and Reliability of Supplier

Companies operating in SSA recognize that to be competitive they need to become vertically integrated and to offer full service packages. Some companies in Mauritius and South Africa produce high-value added products, such as fully fashioned sweaters in cotton, cashmere, lambswool, and various blends, and apparel from wool and manmade fibers. It is highly likely that these countries will be competitive in these high-value products in the future. However, most SSA exports are in basic products that will be vulnerable to lower cost Asian production once the quotas are phased out. ...


Additional Recent Articles

Southern Africa: Textile Industries in Turmoil
Inter Press Service, January 24, 2005
http://allafrica.com/stories/200501241242.html

Kenya: Textiles Workers Face Uncertain Future
Inter press Service, January 29, 2005
http://allafrica.com/stories/200501310007.html

Africa Hit Hard as Global Textiles Market Opens
L'Express, Mauritius, January 3, 2005
http://allafrica.com/stories/200501031479.html

New Year Threat to Kenya's Textile Industry
The East African, Kenya, December 20, 2004
http://allafrica.com/stories/200412210668.html


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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