Swaziland's economy faces a serious challenge now that it has to compete with Asian giants like China for a share of clothing and textile exports to the United States.

The World Trade Organisation's (WTO) elimination of quotas for clothing and textile exports to the US on 1 January 2005, means Swaziland's burgeoning garment industry is under threat.

Union leaders told IRIN that already one foreign-owned factory had relocated its business, while two others had closed for the December holiday period but had yet to reopen, as their export order books were empty.

The tiny kingdom has benefited greatly - as have several other Southern African countries - from its participation in the US African Growth and Opportunity Act (AGOA), under which beneficiary countries enjoyed tariff preferences on exports to the US.

AGOA stimulated the economies of sub-Saharan African countries as foreign investers established themselves in the textile sector in a bid to take advantage of AGOA and sidestep quota restrictions on exports from countries like China and India to the US.

The Swaziland Federation of Trade Unions secretary-general, Jan Sithole, told IRIN that the end of quota restrictions on Asian exporters to the US, as well as the strengthening of the South African Rand - to which the Swazi Lilangeni is linked - against the US dollar, had negatively affected the local textile industry.

Sipho Mamba, secretary-general of the Swaziland Manufacturing and Allied Workers Union, said the clothing and textile sector had become increasingly important to Swaziland's economy.

Before the advent of AGOA there were "three companies in the textile sector - now we have 24 companies and the sector employs about 30,000 people". In a country of about 1 million people, these jobs are vital.

"Employers are saying they cannot cope, and are proposing layoffs and closures. Two factories closed for the December holidays and have not reopened because of a lack of orders. Another company, one of the oldest in the country, has said it does not see itself reopening if the situation continues. We are going to be hard hit by the influx of Chinese garments into the US," said Mamba.

At least one company has already decided to close operations in Swaziland and relocate its factory.

"The manufacturing industry has gained a lot through the textile sector: it is now the leading employer in the country, followed by agriculture - so those 30,000 jobs have a lot of significance to the economy," Mamba added.

In a press statement addressing recent media reports on the issue, the chief executive officer of the Swaziland Investment Promotion Authority (SIPA), Bhekie Dlamini, noted that "authoritative sources have indicated that the elimination of these quotas will allow the international markets in textiles and clothing to be dominated by China and India who, jointly, are expected to control approximately 70 percent market share".

"If this occurs, then there would be shutdowns by the highly marginal factories; retrenchments by the more successful factories in order to increase productivity levels and reduce costs, and a spiral effect on other related economic activities would occur," Dlamini said.

However, he noted that "the extent to which closures, retrenchments and the consequent job losses will occur, is as yet unknown".

"It will depend on how the industry reacts to these developments. It must be borne in mind that some companies have survival strategies, which will allow them to improve efficiencies, diversify into new product lines that are still highly desirable in the US markets; [they may] have strong bonds with their markets, who would be patient whilst they are making adjustments in the production processes in order to stay competitive," he explained.

Various strategies to counter the effects of the elimination of quotas were to be discussed by at an upcoming meeting, Dlamini said. "SIPA and other related agencies of government are exploring ways and means of assisting this industry to alleviate these difficulties. From an international perspective, we strongly believe that there are present developments that could reduce the negative impact of the elimination of quotas on the textile and clothing sector."

Sub-Saharan Africa still enjoys tariff preferences on exports to the US until 30 September 2007. One strategy would be to focus on products with high tariffs for export to the US, maximising the benefits of AGOA, "which will effectively raise the cost of sales for producers outside of AGOA".

"The government of the US has, by law, the right to impose what is referred to as 'China Safeguard' provisions on imports from China, should the government foresee market swamping by Chinese exports. The safeguards would place a growth ceiling of 7.5 percent on [imports from] China in each of five product categories. Three of these product categories are in areas of Swaziland's top four clothing exports, in terms of volume," Dlamini noted.

There could also be a "realigning of the provisions being negotiated [by] the Southern Africa Customs Union free trade area with the US government, to take into account the impact of the lifting of quotas".

He added that "over the last three years, SIPA has pursued diversified industries for inward investments in areas other than textiles".

Dlamini appealed "to the nation not to panic as yet", as government was "not ignoring the problem", and noted that the US embassy and the US Agency for International Development had been "working with Swaziland to try and devise strategies to deal with" the impact on the textile sector.

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

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