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Africa: Footloose Industry and Labor Rights

AfricaFocus Bulletin
Jan 27, 2008 (080127)
(Reposted from sources cited below)

Editor's Note

"The largest investments in manufacturing [resulting from the U.S. Africa Growth and Opportunity Act (AGOA)] are in the garment industry. However, throughout the world, garment industries have been the most footloose, moving from country to country following government incentives and low wages" - Global Policy Network

Labor activists from Africa and the United States met at a conference hosted by the Global Policy Network in Washington this month, focusing on the impact of AGOA and the need to find better ways to protect labor rights as well as development. Although AGOA has increased U.S. imports from Africa, which rose from $13.7 billion in 1999 to $59.2 billion in 2006, most of the growth in trade has been in oil. And in the garment industry, the benefits are both limited and vulnerable.

Matsepo Anna Lehlokoana, an organizer for the Lesotho Clothing and Allied Workers Union, told the conference that AGOA initially spurred growth in the industry. But now, she said, employment in the industry, mainly women, has fallen to half those employed in 2001. Moreover, the companies largely ignore health and labour standards.

Audio from panels at the Global Policy Network conference are available at http://www.gpn.org/research/agoa

This AfricaFocus Bulletin contains excerpts from two 2007 reports on the garment industry and AGOA, drawing on the cases of Namibia, Lesotho,and Swaziland.

Previous AfricaFocus Bulletins on trade issues are available at http://www.africafocus.org/tradexp.php

For information on international campaigns to promote labor rights in the garment industry, see the Europe-based http://www.cleanclothes.org and the U.S.-based
http://www.sweatfree.org Neither of these sites, however, has much information on the role of the garment industry in Africa, as compared to the much larger representation of Asia and Latin America.

For extensive background information on AGOA and related trade issues, visit http://www.agoa.info

Representative Jim McDermott, one of AGOA's leading advocates, has now introduced a new bill, "The New Partnership for Development Act," that would eliminate all tariffs on products from "least developed countries," while requiring that qualifying countries adopt and maintain core labor rights.


Update: "No Easy Victories," edited by AfricaFocus editor William Minter with Gail Hovey and Charles Cobb, Jr., will be featured at events in Chapel Hill, North Carolina on January 30 and Berkeley, California on February 7. For more information, see http://www.noeasyvictories.org The book can be ordered from the website at a 15% discount from the list price.

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

An Assessment of the Africa Growth and Opportunity Act (AGOA) and its Implications for Namibia

Prepared by the Labour Resource and Research Institute (LaRRI) for the Namibia Trade and Poverty Programme
http://www.larri.com.na

July 2007

[excerpts only]

Executive summary

The United States introduced the African Growth and Opportunity Act (AGOA) in 2000 with the intention of maximising trade between the US and sub-Saharan African (SSA) countries. Specifically, AGOA aimed at developing the textile industry in SSA countries as it has the potential to contribute positively to employment creation due to its labour intensiveness nature. Unlike other trade agreements that are bilateral, AGOA is a unilateral trade preference agreement decided upon by the United States and targeting SSA countries. AGOA accords the President of the United States the right to cease the status of a SSA country that does not meet the requirements set out in AGOA. Only eligible sub-Saharan African (SSA) countries that meet certain requirements outlined in the Act can benefit under AGOA. Under AGOA, certain goods from eligible SSA countries can enter the United States duty free and quota free.

The introduction of AGOA led to increased trade between the USA and the SSA countries. However, the increase in trade was not experienced at the same level in all SSA countries and did not affect all goods equally. Trade statistics show that countries that experienced substantial growth in trade included Nigeria, Angola and South Africa, Gabon and Chad. Furthermore, products dominating trade between United States and SSA countries are natural resources and primary products. Overall, petroleum products account for more the 90 per cent of all African exports to the United States. In other SSA countries, AGOA led to the development of textile industries. Thus countries like Swaziland, Lesotho and Malawi experienced a substantial growth in their textile industries. Despite the significant growth experienced by the above-mentioned countries, total exports to the US from African countries are still dominated by petroleum products.

In Namibia, products that dominate exports to the US are metals, minerals, textiles and apparel. The highest overall exports of US$ 238.219 million were recorded in 2004 and dropped significantly to US $129.557 million in 2005. The reduction in exports was also experienced in the textile industry in Namibia and in many SSA countries. For instance, many textile producing SSA countries experienced a decrease in their textile exports and subsequently company closures, which led to loss of thousands of jobs. In Namibia alone, about 1 600 jobs were lost when one of Ramatex's subsidiaries (Rhino Garments) closed down in 2005.

Namibia became a beneficiary country in 2001 and qualified for the 'special rule' provision on apparel articles which allows lesser developed SSA countries to source their raw materials from anywhere in the world. Only countries that had been classified as lesser-developed countries on the basis that their GDP per capita did not exceed $1500 could benefit from this provision. This provision is not permanent but has been extended to 2015.

Under AGOA, Namibia stood to benefit in the following ways: Increased exports to the US due to free market access and absence of limitations on exports Increased employment opportunities through investment; and Creation of infrastructure in the textile and garment industry Before, 2001, Namibia did not have a developed textile and apparel industry but this changed with the introduction of AGOA coupled with many government concessions, which largely influenced the Ramatex company decision to invest in Namibia.

Ramatex is by far the largest textile factory in Namibia and was expected to create about 8,000 jobs, a reason which was used to justify the concessions offered to Ramatex. Following retrenchments in 2005 and 2006, there are currently only 3 600 Namibian workers employed at Ramatex. Despite having increased workers wages in 2006 following lengthy negotiations and a strike, Ramatex workers are still among the lowest paid industrial workers in Namibia. Furthermore, since its inception, labour relations have been tense at the company with the lack of wage increases as the main source of conflict.

This study revealed that there are internal and external challenges that face the success of AGOA in SSA countries. The internal challenges relate to the ability of companies to fully benefit under AGOA due to internal capacity constraints whilst external constraints are the end of the Multi Fibre Agreement (MFA) coupled with the attractions offered by China as an investment location. In Namibia, we found that Ramatex is currently the only company that is exporting to the USA under AGOA and, thus, the only AGOA beneficiary in Namibia. Other exporters to the US indicated that AGOA had no relevance for their exports and thus did not affect their business.

There are many reasons why Ramatex is the only company benefiting under AGOA. Firstly, Ramatex is a big Multinational Corporation whose operations is fully integrated and has been in the business for a long time. Thus Ramatex has the equipment, manpower, already established business contacts and experience to meet the requirements and demands of big US retailers. Namibian textile manufacturers on the other hand operate on a small scale and do not have established business contacts in the US, equipment and manpower necessary to allow them to fully utilise the opportunities presented under AGOA. Another challenge that face Namibian textile and garment manufacturers is the costs involved in shipping products to the United States due to the lack of a direct shipment between Namibia and the US. Thus all exports to the US have to go through South Africa.

Having experienced these constraints, Namibian textile and garments manufacturers came up with an initiative to deal with the challenge by forming a company called the Namibia Garment and Market Company (NGMC). The NMGC was formed in June 2006 with the main aim of bringing together textile and garment manufacturers to assess possibilities for growth and promotion of the textile and clothing industry in Namibia. However, the NGMC had not yet started exporting to the US as they were still looking for proper facilities and equipment to be able to meet the requirements and demands of US retailers.

The end of the MFA at the beginning of 2005 had devastating effects on the textile industries in many SSA countries as mentioned earlier. These effects were acute as it was the introduction of the MFA that had led to the development of textile and clothing industries in many developing countries, which were not affected by quota restrictions. Thus the end of the MFA meant that quota or quantity restrictions that had been placed on certain products (mostly textile) from Asian countries were not longer applicable. In tandem to the end of the MFA, China became highly competitive by offering the opportunity for companies to significantly lower their production costs. Thus many textile companies closed their factories in SSA countries (who are beneficiaries of AGOA) and opened new ones in China and other Asian countries. Thus the success and impact of AGOA has been very limited due to the external (global) and internal challenges faced by local businesses.


Footloose Investors: Investing in the Garment Industry in Africa

Amsterdam, August 2007

by Esther de Haan & Myriam Vander Stichele

SOMO Centre for Research on Multinational Corporations http://www.somo.nl

[excerpts only; for full text visit http://www.somo.nl]

1.1 Introduction

Sub-Saharan Africa has recently received substantial foreign investment in the garment industry, since the US drew up the Africa Growth and Opportunity Act (AGOA). This act is removing barriers to trade between the US and Africa, and has also facilitated the growth in trade in garments from Africa towards the US. Governments in the various countries have put a great deal of effort into attracting the garment industry, and have competed with their neighbouring countries in offering incentives for manufacturing companies to start production - and later on to continue production - in their countries.

Have these efforts been beneficial for the countries in question and who has really gained from these efforts? What have been the consequences of attracting what is known to be an unstable, footloose industry? This report brings together various case studies and analyses, and looks at the consequences of this investment for those that it should ultimately benefit; the population and workers in the garment industry in the various countries in Africa.

This report focuses on Lesotho and Swaziland as two countries that received a share of the foreign investment in the wake of the AGOA, and whose garment industries and exports have grown substantially. ...

6. Critical Issues

So far the AGOA has predominantly benefited the foreign investors that came to Sub- Saharan Africa to profit from the tariff benefits under the trade arrangements, and from the incentives provided by the various governments. In the race to attract this investment, African governments have provided substantial incentives to the industry, ranging from 0% taxes to full rebates on imports to providing factory shells and infrastructure. When they arrived in these countries, the investors identified the AGOA as the main attraction, and the incentives were more the icing on the cake. Nevertheless, for the countries in question these incentives could mean the difference between benefiting from the investments in the garment industry or totally losing out. ...

What becomes clear is that, following the MFA [Multi-Fibre Agreement] phase-out, a substantial number of companies closed down, most without paying benefits to their workers, some leaving large debts unpaid. Nevertheless, a considerable number of companies decided to continue producing, while still trying to squeeze out a bit more from the governments in their host countries. There are several interesting initiatives, notably in Lesotho, that could (potentially) improve the lives and working conditions of the workers in these industries, but a thorough study is needed to make sure that they are not, once again, geared towards benefiting the companies. ...

6.1 What have the countries gained?

The question is whether the AGOA has benefited the economies and the workers, specifically when looking at the benefits of the garment industry. ... Governments, with the support of donors, have put a great deal of effort into attracting investment, foregoing taxes, investing money in factory shells and in highly specific infrastructure, while turning a blind eye to labour abuses. ...

Neither downward pressure on labour rights nor government incentives have prevented companies from leaving the African countries where they temporarily had a presence. This creates ever more desperate attempts by countries to keep the investors, in an industry that has already cost countries too much, by offering better incentives. For instance, a company like Tri-Star was able to use the desperation of a country like Uganda for foreign investment to get the government to provide and invest in buildings and infrastructure, secure loans and credit facilities. The company left the country without repaying any of its debts, leaving behind a destitute workforce that did not even have enough money left to pay the bus fare home. And this happened after the company had already abandoned factories in Tanzania and Kenya, without repaying its debts or paying off its workers.

As is clear from the reports on the different countries, by focussing on the garment industry, countries have not accelerated industrial development in a way that enabled the countries to create new productions systems or develop the innovative capacity to input into new or existing industries.

The mostly Asian companies that have invested in the industry in Swaziland and Lesotho, for example, have invested very little in the local economies or in their own companies. Most of the companies were given factory shells, rebates, tax-free import of machinery, tax holidays, etc., without contributing much themselves. This has made it much easier for companies to start production in a country, sometimes even for a very short time period, and to leave without looking back. ...

6.2 Factory closures

As is clear from the chapters on Lesotho and Swaziland, there are no safety nets to assist workers if their factories close down or they are dismissed. Even if they are given terminal benefits, the amounts are so low that they have spent the payment within a few weeks. Companies are not informing the government nor the workers when they plan to leave the country, nor are there mechanisms in place that could stop companies from leaving. There is not enough effort being made to prevent companies fleeing the country. If they leave, there are no mechanisms in place to make sure that they pay their debts to the workers, to their suppliers, to the national banks, etc.. Governments do not set up funds for companies in which they can put deposits in case they declare bankruptcy or suddenly leave the country. Workers are often left in the cold, without their terminal benefits, sometimes without their wages for the last months and without a social plan to mitigate some of the adverse effects of the sudden unemployment.

The factories use their position to bargain for better investment conditions. For countries desperate for foreign investment and employment, this does not seem like such a bad deal. The costs incurred when companies close are high, however, both economically and socially. If the companies flee the country, they leave behind a shell and infrastructure that was constructed specifically for their needs, and for which the country has incurred high costs.

With factories closing or threatening to close, the workers are put in a complicated position. You have no real bargaining power if you expect your factory to pack up and leave at any time, and the threat of closure can always be used by the management, whether implied or real. In this situation, it is unlikely that workers will negotiate for better wages and improvement of labour conditions. As more and more factories are closing down, the possibility of finding employment elsewhere is also decreasing.

...

6.4 Employment in the garment industry

It is unquestionably the case that the most important sector in terms of employment under the AGOA has been the garment producing sector, due to the labour-intensive nature of garment producing factories and the surge in the industry. A proportion of these jobs in the sector in fact existed before the creation of the AGOA, or were associated with trade with other countries. Malawi, for example, used to export predominantly to South Africa. Since the AGOA came into existence, producers in Malawi have shifted their focus to the United States market, although employment in the sector has remained much the same.

Most of the jobs in this industry are low skilled, with very few people advancing or being trained on the job. Most of the foreign-owned companies fly in their own management, and other top and middle management are recruited in China and India, for example.

Drawn by trade agreements and other incentive programmes to countries desperate for foreign investment and jobs, investors, including Asian investors, have been able to circumvent local labour laws, as well as internationally agreed labour standards laid down in ILO conventions. In Swaziland, for example, violations documented at Asian-owned factories in the last 6 years include forced overtime, verbal abuse, sexual intimidation, unhealthy and unsafe conditions, unreasonable production targets, and anti-union repression. In 2001, when asked about their influence, the Department of Labour in Swaziland admitted that in an attempt to keep investors happy it did not pursue labour law violations to its fullest ability. They say they "can't push investors too hard," but instead are "very gentle and persuasive". Another example is the sacking of the 'AGOA girls' by the President of Uganda because the workers were "not disciplined" when they protested against bad labour conditions. While investors can see profitable returns on their investments, one wonders if workers and their communities really benefit when wages and conditions are substandard and tax abatements and subsidized infrastructure mean that little money goes back into the community. The argument that workers would otherwise have no jobs or no income should not be an argument to sustain exploitation that has consequences for generations because workers cannot even send their children to school.


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.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org


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