Apparel exports under the African Growth and Opportunity Act (AGOA) for the first 6 months of 2003 showed a significant increase over the corresponding period of 2002, according to recently published data by the US Office of Textiles and Apparel (OTEXA).

AGOA-eligible apparel exports for the year to June 2003 amounted to $510 million, representing a 41% year-on-year increase. Apparel exports under AGOA represent 75% of total apparel exports from African countries having met the "apparel visa requirements" under the Act.

Lesotho continues to be the largest apparel exporter under AGOA, with $166 million of exports to date. Next are Mauritius (62 million), Madagascar (60 million), South Africa (54 million) and Swaziland (54 million). These five countries together account for almost 80% of all AGOA-eligible apparel exports thus far in 2003.

A closer look at the trade statistics reveals some interesting trends. Despite strong growth in apparel exports, three of the leading apparel exporters (South Africa, Mauritius and to a lesser extent Swaziland) have started showing signs of a slowdown in their apparel export trajectory.

South Africa stands out as displaying the largest relative (year-on-year) deceleration in apparel exports under AGOA during the last few months. Following strong first quarter growth to March, year-on-year apparel exports were up 134% on the previous year. After the second quarter to June 2003, exports were still up year-on year, but at a much lower aggregate of 87%. This implies that AGOA-eligible exports in the second quarter grew at a third of the pace shown earlier in the year, relative to growth rates in 2002. Most recent data for South Africa indicates that during June 2003, AGOA-eligible clothing exports as a proportion of total apparel exports to the US stood at a mere 32%, down from almost 60% for the month of January. This goes against the overall trend under AGOA, whereby total apparel exports under the Act for all countries stood at 76% for the year to June (up marginally from the previous year).

An important determinant of international competitiveness, the exchange rate of the local currency vis-à-vis US dollar, seems to be the main "culprit" and is having a significant impact on South African apparel exporters. The local currency, after depreciating sharply against the US dollar in 2001, has since recovered to its strongest level in years. This has made foreign-made yarns and fabrics significantly more accessible, and some local apparel exporters appear to be foregoing AGOA-preferences in favour of using competitively-priced third country inputs for US-bound exports outside of AGOA. The benefits herein would thus seem to outweigh average import duties of 15-20% under normal trade relations (NTR).

September 2004 sees the proposed ending of the apparel provisions that currently provide so-called "lesser developed beneficiary countries" (LDBCs) with very liberal rules of origin. These merely require a single transformation, and in practice mean that most AGOA-eligible countries can benefit for AGOA preferences by simply undertaking apparel-assembly operations. Lesotho, the leading apparel exporter under AGOA, seems to be little affected by an "unfavourable" exchange rate (being part of a "common monetary area", the Lesotho currency is pegged to that of South Africa). It has managed to accelerate its year-on-year apparel export growth rate in the second quarter of 2003, with export price pressure seemingly being offset by more competitively priced textile imports. Thus far all of Lesotho's apparel for export under AGOA is made from third country fabric.

Although the time-bound 'apparel provisions' for LDBCs were ostensibly intended to serve as an incentive for the upgrading of regional textile manufacturing capacity, the latest trade data shows that on aggregate there has been little development. In the first half of 2003, 79% of all apparel exports under AGOA entered the US under HTS 9819.11.12: "Apparel from foreign fabric made in a lesser developed country". This proportion is unchanged from the corresponding period of the previous year (2002).

While anecdotal evidence points to major investments in textile manufacturing capacity in countries like Lesotho and Swaziland, AGOA-eligible countries on the whole continue to utilise third-country textile inputs where possible. Whether the apparel provision will be extended post-2004 is uncertain, which means that unless significant additional textile manufacturing capacity is brought on steam before then, there could be a major downturn in apparel exports under AGOA in the years to come.

By Eckart Naumann

An associate at tralac