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Asia strips Africa's textile
industry
By Frank Phiri and Moyiga Nduru
JOHANNESBURG - A few years ago, the tiny kingdom of Lesotho appeared to have a lot on offer for investors: cheap labor, generous tax incentives and proximity to the regional powerhouse, South Africa. Textile manufacturers certainly seemed to like what they saw. Taiwanese entrepreneurs started arriving in Lesotho in 2000. By investing in the country, they were also able to take advantage of the African Growth and Opportunity Act (AGOA). This United States program was set up to allow duty-free access to the American market for a wide selection of exports from countries in sub-Saharan Africa that met certain conditions, such as respect for human rights and the rule of law.
After the Taiwanese came mainland Chinese, Mauritian and Malaysian textile firms. By 2003, Lesotho had grown into a major textile manufacturer in Africa, producing 31% of textiles exported to the US under AGOA. According to official statistics, some 50,000 people depended on Lesotho's textile industry for their livelihood in 2004, compared to 20,000 two years before.
During a four-day visit to Lesotho in December, the then US Trade Representative, Robert Zoellick, told journalists that his country had "a great respect for what Lesotho is accomplishing". But even as Zoellick was lavishing praise on the country's textile sector, its prospects looked grim. Toward the end of the year, six textile factories shut down - leaving 6,650 employees without work. Enraged union leader Billy Macaefa blamed the closures on the expiry of the Multi-Fiber Agreement (MFA), which was introduced by the World Trade Organization (WTO) about 30 years ago.
The initial aim of the MFA was to protect the textile industries of developed nations facing competition from low-cost producers in poorer states. Thanks to the MFA, nations were allowed to impose quotas on textile imports. This gave countries like Lesotho the proverbial "foot in the door" in markets that might otherwise have been dominated by manufacturing behemoths such as China.
But since the MFA's expiry on January 1, the budding textile industry of Lesotho and other countries in the region have been dealt a rude blow. Textile managers are now lobbying their governments to improve the business climate in the 13-nation Southern African Development Community (SADC). But when they say "improve the business climate", what they actually mean is, impel their governments to boost the competitiveness of the region's industry in the global textile market.
The removal of quota restrictions means that poor African producers are no longer protected from the stiff competition that the Asian mass producers pose. Asian countries are expected to enjoy unlimited access to the duty-free American market after the lifting of the quotas. A WTO study released in September showed that China and India would probably come to dominate about 80% of the global textile market in the post-MFA era, while the remaining 20% would be shared by the rest of the world.
Agrina Mussa, president of the Association of SADC Chambers of Commerce and Industry (ASCCI), said they had produced a "white paper" prescribing remedies to encourage domestic investment and production competitiveness. Following the lapse of the quotas, most Asian firms that had invested in the region to take advantage of the AGOA, have pulled out, Mussa said. "We need to look within (the SADC region) for investments which require that we have our own mills. For such investments to come, security, macroeconomic, good governance and labor issues need to be addressed."
The pullout of Asian investors has created thousands of job losses in the region. In a new report, "Rags to Riches to Rags", British-based charity Christian Aid estimates that 27 million workers around the world could lose their jobs as a result of the end of the quota system. Lesotho, Malawi and South Africa have already reported cuts in thousands of jobs in the textile industry.
In Malawi 2,511 jobs were cut between January and March this year when a Taiwanese firm, Haps Garments, closed shop in the administrative capital of Lilongwe and relocated to Taipei. A branch of Haps in Lesotho - where more than 10,000 textile workers have been rendered jobless - also closed in 2004. Malawi has registered nine textile companies under AGOA, but not all of them are exporting to the US. Between them, they employ more than 11,000 workers, who now face an uncertain future.
In the tiny kingdom of Swaziland, where AGOA products constituted 83% of the country's exports, 30,000 jobs are at stake, according to a March 2005 survey conducted by the Zambia-based Common Market for Eastern and Southern Africa (COMESA). "Any potential disruption to the local textiles and garments industry would be understandably resented as this would present enormous social problems [for] the country," said the survey.
In 2004, Malawi earned about US$20 million in textile exports from the US market, according to a January 2005 country report on Malawi by London-based think-tank Economist Intelligence Unit (EIU). The report says the country's exports under AGOA jumped by 40% and that it emerged the third-highest African exporter to the US after South Africa and Cote d'Ivoire.
In regional giant South Africa, some 300,000 textile workers have lost their jobs in the past two years due to the influx of Chinese goods. "We need some sort of quota placed on China. It will be a short-term solution, but it will give the textile industry a breathing space to reorganize itself," said Walter Simeoni, president of the South African Textile Federation. "Chinese clothing now represents 86% of the total garments imported into South Africa. Items like towels, blankets and curtains represent 60%. All this was achieved within the past three years."
Simeoni rejects the argument that slapping quotas on Chinese textile imports would violate WTO rules. "Brazil, Turkey and the US have introduced some quotas on some of their products. The European Union is also looking at it. I think the South African authorities have not been convinced of the urgency of the problem. And, I think they are reluctant to upset the Chinese." This, says Simeoni, stems from the fact that China supported the struggle to end apartheid in South Africa.
Currency fluctuations have worsened the crisis in the textile industry. In recent months, the South African rand has strengthened from the historic low it reached in December 2001, when $1 traded for 13.85 rand. The dollar is now around six rands. "No textile firm in the world can compete in an environment where the currency appreciated against the US dollar and the Chinese currency by 30% in 2002 and a further 25% between January 2003 and October 2003," said Simeoni. "In fact, all our competitors in the East depreciated their currency...against the rand, as they linked themselves to the US dollar in order to stay competitive. This is one of the reasons they create jobs, while we destroy them." An exchange rate of nine rand to the dollar is apparently needed for South African textile exports to regain their competitive edge.
Manufacturers also complain that labor costs in the country are pricing them out of the market. Simeoni claimed that monthly salaries for the industry have increased from an average of about $215 per month in January 2002 to $500 in September 2004. South Africa's competitors in the Far East, he said, pay $40-100 per month.
Concerned that the end of MFA could hurt poor African producers benefiting from AGOA, the US government has since October 2004 instituted safeguard measures to contain specific Chinese textiles and apparels. According to the US government's Committee for the Implementation of Textile Agreements (CITA), the measures aim at limiting disruptions that Chinese exports may cause to the US market, if such distortions can be identified. Under these measures, cotton knit shirts and blouses, cotton trousers, socks, and man-made fiber underwear would be reviewed and put under quotas if they are found to cause market distortions. The US is permitted, under the provisions of China's WTO Accession Agreement, to apply safeguards on textile products from China in instances where those criteria are met.
(Inter Press Service)
By Frank Phiri and Moyiga Nduru
JOHANNESBURG - A few years ago, the tiny kingdom of Lesotho appeared to have a lot on offer for investors: cheap labor, generous tax incentives and proximity to the regional powerhouse, South Africa. Textile manufacturers certainly seemed to like what they saw. Taiwanese entrepreneurs started arriving in Lesotho in 2000. By investing in the country, they were also able to take advantage of the African Growth and Opportunity Act (AGOA). This United States program was set up to allow duty-free access to the American market for a wide selection of exports from countries in sub-Saharan Africa that met certain conditions, such as respect for human rights and the rule of law.
After the Taiwanese came mainland Chinese, Mauritian and Malaysian textile firms. By 2003, Lesotho had grown into a major textile manufacturer in Africa, producing 31% of textiles exported to the US under AGOA. According to official statistics, some 50,000 people depended on Lesotho's textile industry for their livelihood in 2004, compared to 20,000 two years before.
During a four-day visit to Lesotho in December, the then US Trade Representative, Robert Zoellick, told journalists that his country had "a great respect for what Lesotho is accomplishing". But even as Zoellick was lavishing praise on the country's textile sector, its prospects looked grim. Toward the end of the year, six textile factories shut down - leaving 6,650 employees without work. Enraged union leader Billy Macaefa blamed the closures on the expiry of the Multi-Fiber Agreement (MFA), which was introduced by the World Trade Organization (WTO) about 30 years ago.
The initial aim of the MFA was to protect the textile industries of developed nations facing competition from low-cost producers in poorer states. Thanks to the MFA, nations were allowed to impose quotas on textile imports. This gave countries like Lesotho the proverbial "foot in the door" in markets that might otherwise have been dominated by manufacturing behemoths such as China.
But since the MFA's expiry on January 1, the budding textile industry of Lesotho and other countries in the region have been dealt a rude blow. Textile managers are now lobbying their governments to improve the business climate in the 13-nation Southern African Development Community (SADC). But when they say "improve the business climate", what they actually mean is, impel their governments to boost the competitiveness of the region's industry in the global textile market.
The removal of quota restrictions means that poor African producers are no longer protected from the stiff competition that the Asian mass producers pose. Asian countries are expected to enjoy unlimited access to the duty-free American market after the lifting of the quotas. A WTO study released in September showed that China and India would probably come to dominate about 80% of the global textile market in the post-MFA era, while the remaining 20% would be shared by the rest of the world.
Agrina Mussa, president of the Association of SADC Chambers of Commerce and Industry (ASCCI), said they had produced a "white paper" prescribing remedies to encourage domestic investment and production competitiveness. Following the lapse of the quotas, most Asian firms that had invested in the region to take advantage of the AGOA, have pulled out, Mussa said. "We need to look within (the SADC region) for investments which require that we have our own mills. For such investments to come, security, macroeconomic, good governance and labor issues need to be addressed."
The pullout of Asian investors has created thousands of job losses in the region. In a new report, "Rags to Riches to Rags", British-based charity Christian Aid estimates that 27 million workers around the world could lose their jobs as a result of the end of the quota system. Lesotho, Malawi and South Africa have already reported cuts in thousands of jobs in the textile industry.
In Malawi 2,511 jobs were cut between January and March this year when a Taiwanese firm, Haps Garments, closed shop in the administrative capital of Lilongwe and relocated to Taipei. A branch of Haps in Lesotho - where more than 10,000 textile workers have been rendered jobless - also closed in 2004. Malawi has registered nine textile companies under AGOA, but not all of them are exporting to the US. Between them, they employ more than 11,000 workers, who now face an uncertain future.
In the tiny kingdom of Swaziland, where AGOA products constituted 83% of the country's exports, 30,000 jobs are at stake, according to a March 2005 survey conducted by the Zambia-based Common Market for Eastern and Southern Africa (COMESA). "Any potential disruption to the local textiles and garments industry would be understandably resented as this would present enormous social problems [for] the country," said the survey.
In 2004, Malawi earned about US$20 million in textile exports from the US market, according to a January 2005 country report on Malawi by London-based think-tank Economist Intelligence Unit (EIU). The report says the country's exports under AGOA jumped by 40% and that it emerged the third-highest African exporter to the US after South Africa and Cote d'Ivoire.
In regional giant South Africa, some 300,000 textile workers have lost their jobs in the past two years due to the influx of Chinese goods. "We need some sort of quota placed on China. It will be a short-term solution, but it will give the textile industry a breathing space to reorganize itself," said Walter Simeoni, president of the South African Textile Federation. "Chinese clothing now represents 86% of the total garments imported into South Africa. Items like towels, blankets and curtains represent 60%. All this was achieved within the past three years."
Simeoni rejects the argument that slapping quotas on Chinese textile imports would violate WTO rules. "Brazil, Turkey and the US have introduced some quotas on some of their products. The European Union is also looking at it. I think the South African authorities have not been convinced of the urgency of the problem. And, I think they are reluctant to upset the Chinese." This, says Simeoni, stems from the fact that China supported the struggle to end apartheid in South Africa.
Currency fluctuations have worsened the crisis in the textile industry. In recent months, the South African rand has strengthened from the historic low it reached in December 2001, when $1 traded for 13.85 rand. The dollar is now around six rands. "No textile firm in the world can compete in an environment where the currency appreciated against the US dollar and the Chinese currency by 30% in 2002 and a further 25% between January 2003 and October 2003," said Simeoni. "In fact, all our competitors in the East depreciated their currency...against the rand, as they linked themselves to the US dollar in order to stay competitive. This is one of the reasons they create jobs, while we destroy them." An exchange rate of nine rand to the dollar is apparently needed for South African textile exports to regain their competitive edge.
Manufacturers also complain that labor costs in the country are pricing them out of the market. Simeoni claimed that monthly salaries for the industry have increased from an average of about $215 per month in January 2002 to $500 in September 2004. South Africa's competitors in the Far East, he said, pay $40-100 per month.
Concerned that the end of MFA could hurt poor African producers benefiting from AGOA, the US government has since October 2004 instituted safeguard measures to contain specific Chinese textiles and apparels. According to the US government's Committee for the Implementation of Textile Agreements (CITA), the measures aim at limiting disruptions that Chinese exports may cause to the US market, if such distortions can be identified. Under these measures, cotton knit shirts and blouses, cotton trousers, socks, and man-made fiber underwear would be reviewed and put under quotas if they are found to cause market distortions. The US is permitted, under the provisions of China's WTO Accession Agreement, to apply safeguards on textile products from China in instances where those criteria are met.
(Inter Press Service)