The United States government has just released a report which acknowledges that changing import rules to remove product quotas in textiles and apparel will in all likelihood cause African imports to the US to decline. African countries currently benefit from the quota system which provides them with guaranteed access to developed countries' markets for these products.

The quota system is set to end on January 1, 2005 when the United States is forced to scrap the quotas for all countries in line with the Uruguay Round's Agreement on Textiles and Clothing.

It is expected that China will step into the gap, with its very low-cost and highly productive labour force. China is also able to supply the bulk demand from US companies, something most African countries struggle to do.

While the study did find that sub-Saharan Africa was important to the US market, most companies surveyed indicated that logistical and infrastructural problems were significant disadvantages when dealing with African textile and apparel companies. Transport from Africa took longer and infrastructure was poorer in African countries than elsewhere, according to the study.

The US market is also particularly keen to have a “full package service”, which essentially means taking it from the raw materials to the finished form. Most African countries currently import unfinished garments, and then complete them in their factories before sending them off to the US.

While exports from sub-Saharan Africa to the US have grown dramatically under AGOA – up 196 percent from 1997 to 2002 – the eradication of the quota system would probably negatively affect the growth in exports. Other factors that the study found were instrumental in Africa included political turmoil, such as in Madagascar in 2002 when the political situation managed to turn around the textile industry, where the number of textile firms increased by 24 percent from 1997 to 2000. After the disputed presidential election in December 2001, a blockade of the ports and roads resulted in an almost total halt to production during the entire year of 2002, which in turn led to most businesses pulling out of Madagascar. The costs of business, administrative costs and bribery were also cited as reasons for Madagascar’s slump in exports.

But the main poster child for AGOA seems to be Lesotho, which provides, “an abundant supply of low-cost labour, access to excellent port facilities in South Africa, and investment incentives”. In Lesotho about 94 percent of all exports come from the textile industry. In addition the Taiwanese are assisting the country in building a yarn-spinning plant and knitted fabric mill. Employment in Lesotho is almost exclusively relegated to the apparel industry, which makes up 98 percent of manufacturing jobs.

Currently the largest AGOA suppliers in textiles are Lesotho (40 percent), Kenya (15 percent), Mauritius (13 percent) and Swaziland (9 percent).

However the dropping of import quotas in January 2005 could result in South African and Mauritian businesses becoming uncompetitive as a result of their high labour costs, and Lesotho, Madagascar and Swaziland being placed in the same boat as a result of low productivity and the cost of raw materials. "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," the report indicated. Wages in the textile industry start from 33 cents per hour in Madagascar to $1.25 per hour in Mauritius and $1.38 in South Africa.

A special rule for lesser developed countries under AGOA, allows apparel manufacturers to buy textiles to make apparel from any country until December 2004. However after December 2004, these countries will only be allowed to source textiles from other AGOA-member countries or the US if they still want to benefit from the lower import tariffs in terms of AGOA.

Ironically local materials in Africa are still more expensive than foreign materials, even when factoring in all the transport costs. An example of this came from a company in Lesotho, which indicated that cotton chino fabric could be imported from China at 58 cents per square yard, compared with $1.57 per square yard for an identical fabric produced in South Africa.

While the report said that high-value-added products from South Africa and Mauritius will probably remain competitive, the lower level products would be vulnerable to Asian competition.

The answer to this problem appeared to be the introduction of vertical integration – essentially creating a “one-stop-shop”. However the reality is that it would take a significant development in infrastructure to make this possible. In the meantime, low-end apparel manufacturers will most likely be forced to close business if the quota system is scrapped and if the stricter AGOA rules of origin are implemented in January 2005.