TRALAC - Trade Law Centre

Textile sector makes risky stretch to fill AGOA orders

Wednesday, 05 December 2001

Source: Business Report

Cape Town - The Western Cape textile industry is bursting at the seams in its efforts to take advantage of US export opportunities provided by the Africa Growth and Opportunity Act (Agoa) but that growth spurt needs to be carefully managed.

The rapid growth in exports to the US had jerked the local textiles industry from the doldrums of dwindling local demand, with about half of production sent offshore, said Wendy Wilson, textiles and footwear senior manager for credit insurer Credit Guarantee

"But now we have to manage this boost," she said. "Manufacturers have to quickly get to grips with costly machine upgrades, demanding new specifications, heightened expectations

from workers and vastly larger raw material orders.

"These expenses have to be weighed carefully against the tight margins American buyers have negotiated. In fact, there still seems significant uncertainty about the extent to which these margins will filter down to the bottom line."

Helena Claassens, economist for the SA Textile Federation, said local exports of textiles and clothing to the US were expected to reach R1,3 billion this year from R1 billion in 2000, but 80 percent of that amount comprised garments.

"The benefits of Agoa still have to flow down the production pipeline from the clothing manufacturers to the yarn producers and eventually to fibre producers," Claassens said.

"In addition, most sub-Saharan countries except South Africa and Mauritius received a special arrangement to use third-country fabrics, such as from the Far East, for the first four years of the eight-year term."

Cape of Good Hope Bank and Wesgro both echoed the warning against overextending capacity for Agoa. They said in Business Prospects for the Western Cape, their annual publication, that recent economic events would place a damper on expectations about the future absorption of imports to the US.

Wilson said: "Some mills have recommissioned machines that have been mothballed for years. Virtually all plants are now running 24-hour shifts, seven days a week."