JOHANNESBURG — As they look ahead to 2005, most African apparel executives see trouble brewing for their continent’s industry.
With the exception of Mauritius, South Africa and Madagascar, the sub-Saharan textile industry remains in a largely embryonic state.
The creation of the African Growth & Opportunity Act by the U.S. Congress in 2000 did much to spur growth in the region. Through AGOA, apparel manufacturers from eligible sub-Saharan African countries were granted duty- and quota-free access to the U.S. As a result, total U.S. apparel imports from the region have increased by 211 percent in the four years since AGOA was enacted. For the year ended in July, the region’s shipments of textiles and apparel to the U.S. were worth $1.62 billion, according to data from the U.S. Commerce Department.
The significant gains made under AGOA, however, are set to be eroded by the World Trade Organization’s dismantling of the quota system.
“The Kenyan apparel industry is extremely worried about extinction with the phaseout of quotas next year,” said Jaswinder Bedi, president of the Kenya Association of Manufacturers & Exporters.
For the year ended in July, Kenya’s apparel and textile exports to the U.S. came to $232.4 million, a 28.7 percent increase from a year earlier.
“The only reason business under AGOA is flourishing is because of the competitive advantage accorded to AGOA-accredited countries,” Bedi said. “Duty-free entry alone under AGOA post-2005 does not have enough advantage for our industry to survive.”
He said Africa’s apparel industry suffered from a lack of competitiveness, the absence of a textile pipeline, a high cost of doing business and high unit cost of production.
This same attitude of frustration and resignation is echoed by manufacturers across the region.
“Madagascar will suffer enormously, despite AGOA,” said John Hargreaves, vice president of Groupement des Entreprises Franches & Partenaires, the Malagasy equivalent of an export-processing-zone association. “Already today we are seeing a drop in orders from the U.S. and even EU countries in favor of China. This is very bad for the industry.”
Hargreaves lamented what many consider to be the lack of a level playing field. It’s especially discouraging, he said, in the light of the relatively speedy recovery of Madagascar’s textile industry after the political crisis in December 2001. At that time, a disputed presidential election brought the island nation to a standstill for a few months.
For the 12 months ended in July, Madagascar’s industry shipped $260.2 million worth of fabrics and garments to the U.S. That marked a 145.6 percent increase from the prior-year period.
“At the moment, we are doing quite well,” he explained. “We’ve restored investor confidence. Wages are extremely low at $17 per month, which is due to the devaluation of our currency. Quality is very good, as is our reliability. We can deliver in 30 days and our customs clearance procedure has been greatly facilitated.”
But this current state of well-being will not last forever, he said, adding it will most definitely be affected by 2005.
In retrospect, Hargreaves said, AGOA, which was enacted to create a fully integrated textile industry in sub-Saharan countries apart from Mauritius and South Africa, failed to take into consideration the fact that these countries are not ready for capital-intensive industry. While the extension to the region’s least-developed countries of access to third-country fabric through 2007 has been approved by Congress, the ray of hope it offers is not as substantial as it seems, he said.
“At the moment, the logistics simply aren’t there, and 2007 is, when you think about it, just around the corner,” he said. “It doesn’t buy us enough time.”
Mauritius, on the other hand, has long been aware of the looming threat of 2005. Its textile industry has suffered many blows in recent years, with many established factories, particularly those capitalized with Hong Kong money, closing down, resulting in the loss of thousands of jobs. One of the stalwarts of the textile industry, Floreal Knitwear, said last month that 900 workers were to be laid off.
The textile industry is one of the five pillars of the Mauritian economy and the government has been quick to react to the challenges presented by 2005.
“We cannot ignore the facts,” said Muwerkashing Gopal, managing director of Southern Textile. “Mauritius is unique in that both the government and the private sector realize the need to work together. The problems affect the whole nation and the contribution of the private sector is as important as that of the government.”
Gopal intends to carry on for as long as business remains economically viable.
“China is putting a lot of pressure on the industry,” he conceded. “But we have to seek ways to restructure, reorganize, reengineer and redefine existing production structures.”
This would include concentrating on the medium to upmarket product range and providing more value-added service “so that customers will still come.”
The failure of Mauritius’ bid to be reclassified as an LDC, and therefore qualify for access to third-country fabric under AGOA, is yet another blow to the industry, according to Didier de Senneville, director of Africa-U.S. Trade Services Ltd.
“Can Africa adapt and survive? Obviously, we’re still very worried about the end of quotas, which we would all like to retard to the maximum possible date,” he said. “But the textile industry in the region will go on, and the only way it will do so is by supplying niche markets and producing very specific products.”
De Senneville, however, does not see the industry as continuing to provide significant employment to the population.
“As a country, we have had little choice but to diversify our economy,” he explained, citing the emerging information technology industry as a viable alternative to textiles.
The South African take on the situation is much more sanguine.
Walter Simeoni, managing director of the Frame Textile Group and vice president of the International Textile Federation, said he’s convinced that the opportunity still exists for Africa to enjoy a healthy share of the world market.
“Who would like to put all their eggs in China and Pakistan?” he asked rhetorically. More realistically, he said, buyers are likely to spread out their orders, and consequently their risks, “putting perhaps 75 percent in one place and the remaining 25 percent in other proven, reliable partners.”
While conceding that South African exports are currently handicapped by the strength of the brand — which has gained about 12 percent in value against the U.S. dollar over the past year — the country still offers strategic advantages.
“We have maintained consistent good quality and we can deliver orders in good time,” he said. “Retailers recognize that they have a safe bet when dealing with South Africa.”
Simeoni added that doing business with Europe is especially facilitated by the fact that “we are in the same time zone.”
As the prospect of China dominating world trade looms, Hargreaves of the Malagasy exporters’ group said he believes the only recourse is for all countries to get together and tackle the situation as a global issue. The Istanbul Convention, to which 15 African nations are signatory, is one way of presenting a united front.
Kenya’s Bedi said, “It is imperative that the WTO addresses these issues and creates a level playing field for developing countries such as Kenya, whose industry is at infancy stage and desperately needs support to survive.”
Hargreaves warned, however, that if such a bid is successful, it would nevertheless take months or years to correct the situation.
“In the meantime, industries will disappear and will not be able to come back in time,” Hargreaves said.