As sourcing executives seek out the next fertile ground, they’re starting to take a closer look at several sub-Saharan African countries as viable apparel sourcing alternatives.
The renewed interest and investment in Africa comes as the U.S. reviews the African Growth & Opportunity Act. Under the trade preference program, 40 of 49 sub-Saharan African countries are eligible to receive duty benefits. President Obama’s action to reinstate AGOA benefits for Madagascar on Thursday, with final approval pending on apparel, gave importers more of an incentive to shift production to the region.
Industry officials are keeping a close eye on AGOA, which expires in September 2015, because Congress must renew the program and past delays have disrupted business. AGOA contains a stipulation known as the “third country fabric provision” that helps companies producing in 27 least-developed countries that are part of the pact to use fabrics outside of the region and still receive duty-free benefits when shipping to the U.S.
The White House is hosting the first U.S.-Africa Leaders’ Summit in Washington Aug. 5 and 6 aimed at building on progress made since Obama’s trip to Africa last summer, where he launched a Trade Africa initiative to increase imports 40 percent from the East African Community nations — Kenya, Burundi, Rwanda, Tanzania and Uganda — by reducing transport time and customs delay.
Apparel and textile imports from the 49 sub-Saharan African countries hit 260.9 million square meter equivalents, valued at $983.8 million, for the year ending April, according to the American Apparel & Footwear Association.
Emanuel Chirico, chairman and chief executive officer of PVH Corp., commenting on his company’s commitment to sourcing in Africa at its annual meeting last month, said, “There are more challenging areas to source around the world, be it Bangladesh, the rest of Asia. We’re talking about developing eastern Africa as a place for sourcing. We’re in there very early really challenging that.”
Chirico said while PVH explores the region, it will make factory conditions and the “appropriate treatment” of workers a priority.
“By us being there as part of the initial wave that goes into that continent…we will try to lay our culture and our values into that part of the world, as well,” Chirico said.
Rick Darling, executive director of government and public affairs at Li & Fung Trading Ltd., said infrastructure and development problems have hampered the investment in production on the continent. Darling, in town for a sourcing summit in May, said there has been a renewed interest in Ethiopia and Africa overall.
“Ethiopia has tremendous interest from Europeans and Americans and production is beginning to increase,” he said. “Foreign investment is increasing and it could become a country to watch in the next two to three years,” noting that Li & Fung has apparel production there that could be expanded. “Ethiopia is certainly making an aggressive move.”
Paul Ryberg, president of the African Coalition for Trade, said, “There has been a big push by the Ethiopians to attract investment and it has been successful, with a major investment coming from a Turkish, vertically integrated operation. The main thing is they have among the lowest, if not the lowest, cost of electricity in Africa and the government is putting together some attractive incentives.”
Ryberg said Ethiopia also has its own cotton production and easy access to Egyptian cotton, adding, “It seems to be the place that looks like it has a lot of potential.”
Madagascar, which at one time was the second-largest AGOA apparel supplier, could also climb back up as long as its duty-free apparel benefits are restored, which many industry officials expect to now happen fairly quickly.
“Madagascar has the potential to go gangbusters now,” said Ryberg. “It will come back pretty strong.”
Stephen Lamar, executive vice president of the American Apparel & Footwear Association, said AAFA “had a number of member companies do business in Madagascar, and they have been looking to get back in the country.”
Julia Hughes, president of the U.S. Fashion Industry Association, said another country to keep an eye on is Kenya.
Hughes said Kenya has grown significantly and taken over the top role as the largest AGOA apparel supplier to the U.S., adding, “Lesotho is not far behind in terms of supplying the market and there is definitely capacity for growth.”
Lamar said Mauritius, which is bent on becoming the fashion capital of Africa, is trying to build a competitive advantage that is not directly dependent on duty preferences.
Hughes and Lamar stressed the importance of AGOA’s renewal to keep the momentum growing in sub-Saharan Africa.
“We are now in a place where companies are placing orders for delivery for a year from now and so we need Congress to act in order to show a new commitment to sourcing in the region,” Hughes added.
OUT OF AFRICA
The top five apparel and textile suppliers under AGOA (by square meter equivalents).
1. Kenya: 96.6 million SME
2. Lesotho: 69.2 million SME
3. Mauritius: 30 million SME
4. South Africa: 13.9 million SME
5. Swaziland: 13.4 million SME
* Source: U.S. Commerce Department