Aggregate apparel exports to the United States from countries belonging to the Southern African Customs Union (SACU), comprising South Africa, Namibia, Botswana, Swaziland and Lesotho, have shown a slight year-on-year increase. The latest trade data for apparel exports, published recently, reveals that for the 9-month period to September 2004 SACU’s apparel exports have increased by US$ 38mn compared with the same period last year. But South Africa’s poor showing taints this performance.

South Africa’s exports of apparel have decreased by over 40% in $-terms, which if one considers the strengthening of the local currency, pushes this decline even further into the red. For the first month of this year, the country’s US-bound apparel exports were valued at US$ 109mn, down from US$ 184 over the same time last year.

Exporters and other industry stakeholders have been blaming the local currency for the weak performance of the sector, saying that local producers are unable to remain internationally competitive with a currency that is worth twice as much against the US$ compared to 2 years ago. But this does not explain why each of the other four SACU countries – whose currencies are directly linked to the South African Rand – have shown a far better performance. Taking South Africa’s garment exports out of the equation, the BNLS (Botswana, Namibia, Lesotho and Swaziland) have collectively increased apparel exports to the US by US$ 114mn.

This 27% year-on-year increase more than compensates for the less favorable exchange rate that these countries faced more recently. A large proportion of SACU garment exports enter the US duty-free under AGOA, with the proportion ranging from 80% (for South Africa) to 99% (for Botswana). The chart on the left also provides a comparison of each country’s garment exports so far this year.

To hold only the Rand responsible for the industry’s woes would ignore some of the other variables affecting its international competitiveness. For example, South Africa’s labour legislation can be compared with that typically found in more developed industrialized countries. Its relatively high wages (at least compared with other African countries) and perceived labour force inflexibility count against its ability to compete in certain market and product segments. But counting in South Africa’s favour are its availability of skills, experienced management and the ability to produce high quality garments especially in some of the higher value-added categories.

But a by far greater differentiating factor within the SACU textile and garment sector is the fact that South Africa faces completely different Rules of Origin (ROO) under AGOA’s apparel provisions than do its BNLS neighbours. Whereas South African exporters are required to manufacture garments from local or regional fabric made from African or US yarn, the BNLS are merely required to complete the final stage of production locally in order to qualify for AGOA benefits. In other words, BNLS exporters are permitted to use cheap foreign sourced fabric – for example made in one of the low-cost producing South East Asian countries – and still qualify for preferential (duty-free) market access.

While this uneven footing has made it particularly difficult for South African producers to remain competitive in the US market, it has allowed the BNLS to attract much-needed foreign investment to kick-start and grow the apparel manufacturing industry. When AGOA’s special dispensation for lesser-developed countries expires in 2007, regional garment manufacturers will increasingly look to South Africa’s textile suppliers for AGOA-eligible sources of supply.

Of course, a further variable may yet prove to be the sector’s undoing: the phasing out of textile and apparel quotas under the WTO’s Agreement on Textiles and Clothing (ATC). This will remove volume restraints imposed by the United States and Europe especially against China, India and Pakistan, thereby potentially robbing the comparative advantage held by smaller producers competing in quota-constrained categories. As yet it is uncertain how African countries will be affected, although various studies have predicted Sub-Saharan African countries to be negatively affected by this development. With negotiations for a proposed Free Trade Area between the US and SACU countries currently well underway, it is clear that origin rules will have a strong bearing on the future ability of regional textile and garment producers to compete in the US market. Preferential origin rules with respect to the US will thus be key for the competitiveness of SACU countries in the post-quota environment.

Eckart Naumann

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