PORT LOUIS, Mauritius — In the six months since hosting a summit intended to promote Africa’s sprouting textile and apparel industries, the island of Mauritius has seen its own industry — one of the oldest in the region — go into a sharp decline.
This year four major manufacturers have closed their doors for good, leading to the loss of over 3,000 jobs. The closings have included Texel Knitwear, Stylish Knits Ltd., Winbright Ltd. and Hong Kong Textile Ltd. In addition, industry leader Novel Denim shut down a key factory in Coromandel.
Another 3,450 industry veterans are expected to join the ranks of the unemployed when Leisure Garments, the pants division of multinational manufacturing giant Esquel Enterprises, ceases operations in Mauritius on Aug. 30 and when Summit Textiles, part of Novel, massively downsizes its factories from 16 units to 10 in September.
This Indian Ocean island was one of the nations seen as having the chance to benefit from the African Growth and Opportunity Act, a 2000 U.S. law that allowed apparel and textile made in sub-Saharan Africa to enter the U.S. free of duties and quotas. But the irony is that Mauritius’ relative prosperity worked against it, as many U.S. importers chose to shift operations into the region’s Lesser Developed Countries, which are allowed by the law to use fabric made outside the region. That fact has Mauritian leaders clamoring to be given LDC status.
Aside from AGOA, industry leaders here said they’re preparing for the new parameters they’ll face in 2005, when quotas on apparel and textiles will be dropped among the 146 members of the World Trade Organization.
“The rules have changed in the game,” said Alain Rey, general manager of Novel Garments. “The year 2005 will be a different ball game altogether. It will no longer be about quotas. It will be about cost. And it will be about flexibility in responding to the new rules.”
Most of these companies in crisis, including the now-defunct enterprises, except for Texel, were set up in the late Seventies and early Eighties, with capital from Hong Kong textile groups. Attracted by lower production costs and preferential access to European markets, these early investors, including Esquel, Crystal Group, Novel and Afasia, were pioneers in the Mauritian textile industry, establishing such companies as Leisure Garments and Textiles International, Sinotex and Kentex, Novel Denim and International Fashions.Today, that competitive advantage is quickly being eroded. “It is difficult to survive,” acknowledged James Chien, director of Hong Kong Garments. “We are living from day to day. It is no longer that easy to work here compared with Asia.”
Chien, whose company employs 400 workers and produces 400,000 T-shirts and other knitwear items per month for such European customers as H&M, pointed out that costs have escalated tremendously.
“We are in a very bad situation and government help is just not there,” he said. “The energy costs have not decreased, while workers’ salaries have increased. How can we continue to offer our customers the best price under these conditions?”
Production, he said, is down 25 percent, while gross profits are down 20 percent.
“We don’t want to pull out of Mauritius just yet,” he said, “but it all depends on the orders we get this year. If there are no orders, then we may not have any choice but to close down. We can’t afford to continue to pay interest on loans every month if no orders are coming in.”
Vikash Ramdin, Mauritius branch manager of Hong Kong-based sourcing giant Li & Fung, said, “There are hardly any operators left in the textile industry….We are in a little bit of turmoil, and the future does not look so bright. Mauritius has lost its competitive edge.”
The fact that most factories, except for Floreal Knitwear, Compagnie Mauricienne de Textile and Novel, source 100 percent of their yarn or fabric from off the island, mainly China and India, has helped to cause the rise in manufacturing costs, Ramdin explained. He said he hoped the nascent local spinning industry would infuse some much-needed “oxygen” into the business, and help the island regain “some of its competitive advantage.”
Li & Fung is sourcing less from Mauritius, Ramdin disclosed. He said hopes that the AGOA would be beneficial to the country were ultimately over-optimistic. Likewise, the shift in orders from Asian factories that Mauritian makers had hoped would result from the SARS outbreak this spring failed to materialize in a substantial way.“We have not seen that much improvement. There were so many issues to resolve before the treaty could even go into effect,” he said, referring to several regulatory disagreements that delayed the time when Mauritian exporters were able to begin taking advantage of the program. “AGOA did not have the ideal start,” he added.
Albert Tong, director of troubled enterprise Summit Textiles, is blunt on the subject of AGOA.
“It will kill Mauritius,” he states. “AGOA may help other African countries, but it is not good for everyone.”
One reason for the bitterness of many on Mauritius is the lesser-developed countries provision of the AGOA law. That provision, which applies to most of the sub-Saharan African nations covered by the bill but not Mauritius, allows the LDCs to import fabrics from outside the region and sew them into garments that still qualify for quota and duty breaks. The intent was to jump-start the development of apparel manufacturing in poor nations with little industrial base, but some contend the effect was to shift production from established centers, including Mauritius, to the LDCs.
Trade statistics show that Mauritius’ export growth has lagged behind that of the other AGOA nations. According to U.S. government data, for the year ended May 31, Mauritius’ exports of textiles and apparel to the U.S. rose 7.6 percent to $265.4 million. Over that same time period, overall shipments from sub-Saharan Africa rose 17.7 percent to $1.24 billion, with Kenya and Swaziland enjoying respective growth rates of 106.7 percent and 96.6 percent, respectively.
“When AGOA kicked in, we thought, fine,” said Rey, of Novel. “We would be saving 17 percent in duties. We figured we could pass on 12 percent of those savings to our customers, while we absorbed 5 percent.”
But it didn’t work out that way.
“Our competitors in the Far East reacted,” Rey continued. “The Far East had the capacity to respond to these prices and at incredible speed.”
He added that it is difficult to see what advantages AGOA has brought to Mauritius.
Fluctuations in currency exchange rates have exacerbated the situation.“The Mauritian rupee in the past year has appreciated against the dollar by almost 15 percent,” he said. This is somewhat baffling, as the economic indicators did not support this slide against the dollar. In recent months, the exchange rate dropped until the dollar bought only 26 Mauritian rupees, though by Monday the exchange rate stood at 29.25 rupees to the dollar.
The government of Mauritius strongly feels that the only chance its textile industry has of surviving post-2005 is by being given LDC status, somewhat ironic for a country that enjoys a relatively high standard of living for Africa and where rising car ownership has made traffic congestion a major concern of the population.
An official delegation headed by the Prime Minister, Sir Anerood Jugnauth, traveled to Washington in June to plead Mauritius’ case. Under the terms of AGOA, as an LDC, Mauritius would be able to import raw materials outside of Africa and still enjoy duty-free access to the US market.
As far as many in the industry are concerned, however, labor is a far more pressing issue.
Tong, of Summit, said both the high cost of labor and the shortage of workers are crucial factors that have contributed to his firm’s poor performance.
“Our workforce is between 40 to 50 years old,” he said. “They are not as efficient anymore.”
Moreover, he continued, as young Mauritians are not interested in factory work, it has become necessary to import workers from China and India.
“Unfortunately, Mauritius is a small island with a limited population,” he said. “It is not China, the factory of the world with an unlimited supply of labor. We need to bring in new blood. That’s the only way we can increase our efficiency.”
Mauritius is home to 1.2 million people, and its growing service sector — driven by tourism to the tropical island — now employs about 61 percent of its workforce.
Critics have dismissed the moves by Hong Kong-based companies to shut their factories and pull off the island as lacking commitment to the country.
Rey, who works for one of those Hong Kong-owned companies is more pragmatic.“Look, at the end of the day, business is business. Investors these days are very mobile,” he said. “They invest where they can make money. You cannot expect them to be committed to stay on in the country if the investment climate is no longer favorable to them.”
He explained that in Mauritius, “the cost base is now higher than in many other countries. What you save in duties gets caught up by excess costs, i.e. labor and overhead. As an investor, you have to ask yourself: ‘Is it worth staying?’”
Novel, he added, intends to remain operational in Mauritius for as long as it can.
“We’ve got orders,” he said. “We’ll keep going.”
The company has had a spectacularly unfortunate run, having been badly hit by the 2002 Madagascar crisis. The Mauritian publication Business Magazine ranked Novel 10th among the top ten companies according to turnover for the financial year ended March 31, 2003, with sales at about $100 million, or close to 3 billion Mauritian rupees, up 20 percent from the previous year.
The company’s latest pretax profits, however, amounted to a dismal $2.8 million, or about 83 million rupees. Dollar figures have been converted from the Mauritian rupee at current exchange.
By contrast, the Mauritian-owned CMT had a turnover of about $87 million, or 2.6 billion rupees, with pretax profits of $14.3 million, or 429 million rupees.
To remain competitive and increase profitability, Rey said Novel has had to compact five units into four.
“We’ve had to reengineer our manufacturing operations. In the process, we’ve had to let go of some employees,” he said, referring to the cut of 1,100 jobs dropping the company payroll to 4,900. “But our production output remains the same.”
For the 3,000-plus workers who face unemployment when Leisure and Summit close down their factories, the government has initiated, with the full cooperation and financial assistance of the troubled companies, a program of re-training and redeployment to enable them to find jobs in other sectors, like tourism.
Labor Minister Showkutally Soodhun said it is important for companies closing down to realize the consequences their actions will have on society.“In the past, a factory would just close down and compensate their workers according to what is mandated by the law,” he explained. “Now, we ask to be informed in advance so that we can start retraining immediately.”
Leisure Garments has instituted an Employee Support Plan, permitting employees to work flexible hours, thus allowing them to go, in groups of 100 to 200, to various retraining courses.
“We are also discussing the possibility of portable pensions for workers who are forced to find employment in another factory,” he added.
One Hong Kong textile group that seems to be riding out the storm calmly is Crystal Group. Its Mauritius subsidiaries, Kentex and Sinotex, produce a combined total of 1 million units of trousers and T-shirts per month.
Perhaps a clue to the company’s staying power — it has been on the island since 1972 — is its concentration on a small number of key customers.
“At each location, the group has its own key customers,” says Edmund Lau, regional general manager.
Instead of expanding orders by attracting more customers, the company seeks to increase its share of existing customers’ orders.
“This way, the system is simplified,” Lau said.
Even Sinotex is not immune to the problems the industry is facing. The looming end of quotas notwithstanding, Lau said he believes that “where there is a threat, there is an opportunity.”
“The future will depend on individual manufacturers,” he said. “The government cannot be expected to help. The company must look internally to ways to reduce cost and increase productivity.”
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