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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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