A new report by the US government on the impact of changing import rules for the garment industries of Southern African countries under the African Growth and Opportunities Act (AGOA) suggests that exports to the United States are likely to decline.

"Industry sources indicated that the region's overall share of US apparel imports will fall, notwithstanding AGOA preferences," said the report by the Office of the United States Trade Representative.

Although AGOA provides duty-free access to the US market, a key advantage has been African countries' exemption from product quotas. On 1 January 2005, this advantage ends when the US, compelled by the free-trade Uruguay Round of Agreement on Textiles and Clothing, ends quotas for all countries.

Nineteen sub-Saharan African nations qualify under AGOA: Botswana, Cameroon, Cape Verde, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Senegal, South Africa, Swaziland, Tanzania, Uganda and Zambia.

China, with its low-cost and highly productive labour, is expected to become the "supplier of choice" for most large US apparel companies and retailers, whose preference for buying in large volumes is beyond the capacity of some African nations to satisfy. However, US trade officials do not wish the country to be overly dependant on one supplier and, while India is expected to become a larger exporter to the US, there will still be business for Africa if industrial, labour and infrastructure problems can be addressed.

"The importance of the US market to sub-Saharan Africa was stressed by a number of companies (surveyed for the report). But sub-Saharan Africa has a number of disadvantages in terms of logistics and infrastructure," the study found.

Most African manufacturers do not offer "full-package services" that permit a garment to be produced from raw material to its finished form. Rather, most African countries import materials and unfinished garments, which are sewn in labour-intensive factories and reshipped.

"Many firms have limited capacity to offer large volumes that may be required by US firms looking to consolidate sourcing following quota removal. Infrastructure and logistics are inferior to those in other regions of the world. Shipping time is longer," the report noted.

The economic and social stakes are high. Although sub-Saharan Africa supplies less than one percent of the world's textiles and apparel, the Cotonou trade agreement with the European Union and AGOA have reinvigorated the industrial sectors of many countries in the region.

The report cites UN data showing that between 1997 and 2002, US imports of cotton trousers and knit tops from sub-Saharan Africa grew by 196 percent. Other garments sold to the US included wool suits from South Africa and, until 2002, Madagascar.

Madagascar's political turmoil in 2002 seriously eroded exports, and cast a pall over the region's desirability as a source of textiles and apparel, the report said.

Prior to the disturbances, Madagascar's apparel industry was one of the fastest growing industries in the region - half of all exports were textile and apparel products. From 1997 to 2000, the number of textile and apparel firms increased by 24 percent, to 230. But when a disputed presidential election in December 2001 resulted in the blockade of ports and roads, clothing production halted for most of 2002. Significant disinvestments followed.

"A substantial additional cost to conducting business in Madagascar involves service and overhead costs. Rent is relatively expensive; the administrative cost of importing and exporting goods is quite high, and bribery is an expected cost of business. Transportation costs are significant; shipping facilities tend to be in disrepair, cargo space is limited, the road network is inadequate and the customs service is inefficient," noted the report, recounting problems, which, companies said, canceled out the advantage of low-cost labour.

By contrast, "Lesotho offers an abundant supply of low-cost labour, access to excellent port facilities in South Africa, and investment incentives."

As a result, Lesotho leads the world in the percentage of exports from its garment industry: 94 percent. Although the country must import all raw materials, Taiwanese investors are currently building a state-of-the-art denim fabric mill, and have announced plans for the construction of a yarn spinning plant and knitted fabric mill. Such investment is considered essential to curbing unemployment, estimated at between 40 percent and 60 percent. Ninety-eight percent of manufacturing jobs are in the apparel industry, "virtually the only source of manufacturing employment".

AGOA accounts for 71 percent of apparel by value exported from sub-Saharan Africa to the US. The largest AGOA suppliers were Lesotho (40 percent), Kenya (15 percent), Mauritius (13 perecent) and Swaziland (9 percent).

The dropping, in January, of all import quotas from which sub-Saharan African countries are now exempt means these countries will have difficulty competing with other suppliers, either because their wages are high (such as South Africa and Mauritius) or because their low productivity, combined with the cost of other raw materials, offsets their low wages (Lesotho, Madagascar and Swaziland were cited as examples).

"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," said the report.

Wages in the apparel industry also vary widely throughout the region, from US 33 cents per hour in Madagascar to $1.25 per hour in Mauritius and $1.38 in South Africa. A garment worker in Lesotho earns $80 to $100 a month, compared to the $200 to $250 a month a worker earns in a South African garment factory, a four-hour drive away.

Erratic electricity supplies, poor transportation infrastructure and government bureaucracy also account for complaints by business people about the region.

By the end of 2004, an additional problem for exporting countries will be AGOA's transhipment rules. Currently exporters can buy in textiles to make apparel from anywhere - typically the Asian market. At the end of 2004 they will only be able to use cloth originating in the US or AGOA-member countries.

A number of AGOA beneficiary countries, including Lesotho and Mauritius, are seeking a delay in the implementation of the third country fabric rule.

Local raw materials are more expensive than those that can be imported from China and India, even when factoring in shipping costs. One company in Lesotho reported that cotton chino fabric imported from China was 58 cents per square yard, compared with $1.57 per square yard for an identical fabric produced in South Africa.

South Africa and Mauritius are the only regional countries with established textile industries from which other countries can purchase raw materials.

"Companies have also expressed concerns about the small variety of fabrics that can be produced in sub-Saharan Africa, compared with Asia. This is considered an important disadvantage to the region, as buyers and fashion dictate the type of fabrics used," the report noted.

Vertical integration, whereby countries can turn raw materials into finished products in a single company or an integrated industry, is seen as necessary to secure strides made under the current quota system, and which will safeguard the garment industries when quotas end next year.

"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 man-made fibres (which are only manufactured regionally in South Africa). It is highly likely that these countries will be competitive in the future. However, most regional exports are in basic products that will be vulnerable to lower-cost Asian production once the quotas are phased out," the report said.

Investments in service upgrades and vertically integrated companies are ongoing, but take time.

"Most companies cited vertical integration as a way to compete in a quota-free world because it will cut lead times, assure fabric availability, and give a company more control and flexibility over its output," the report said.

The complete report, "Textiles and Apparel: Assessment of the Competitiveness of Certain Foreign Suppliers to the US Market", is available at: http://63.173.254.11/pub3671/main.html

[ This report does not necessarily reflect the views of the United Nations]