TRALAC - Trade Law Centre

Fairy Tale Ends for Textile Exporters

Wednesday, 16 February 2005

Source: Business Report (South Africa)

The African textile and clothing industry's near fairy tale of jobs and investments growing year after year is ending badly, turning into a cautionary fable of the challenges of global trade.

Thousands of jobs have already been lost across the continent as investors dismantle factories built to take advantage of the US African Growth and Opportunity Act (Agoa).

More than 22 000 people lost their textile factory jobs between June last year and January in Lesotho because the country could not compete in a quota-free market, said Lesotho Development Corporation chief executive Peete Molapo.

Kenyan trade minister Mukhisa Kituyi said the country's textile companies had orders until March 25, but after that many were likely to close and leave 20 000 people jobless.

Many of the textile investors in Kenya are from Dubai, India, Pakistan, Sri Lanka and Taiwan. They are now in search of the next country to invest in.

Before Agoa took effect in 2000, Lesotho did not export clothes or textiles at all, according to the World Trade Organisation (WTO).

In 2002, Lesotho overtook Mauritius as Africa's biggest exporter of textiles to the US. In 2003 the country exported textiles worth $419 million (R2.5 billion at current exchange rates) to the US.

That year, Africa's total textiles and clothing exports were worth $2.3 billion, less than 1 percent of world trade but a huge boon for the continent.

Thirty-seven sub-Saharan countries are eligible for special conditions to export a wide range of goods and products to the US under Agoa. Of these, 23 are eligible for duty- and quota-free access to the American textile market.

In Kenya, this treatment has seen employment in export zones increase almost sixfold to 35 935 people in 2003, according to the Export Processing Zones Authority. In 2002, 81 percent of the exports from the zones were textiles and clothing.

Many African countries had not expected the quota system to end so soon, despite repeated warnings.

African textile industries were supposed to have become competitive before the quota system ended. They did not, mostly because of bad governance and high relative costs.

Meanwhile, China and India improved their productivity further.

While skilled labour costs are competitive in Africa compared with Asia, other costs, including intangibles such as dealing with corrupt bureaucracies, are not. China and India also benefit from economies of scale.

To compete in a quota-free world textile market, Kenya would need to reduce production costs such as electricity and transport, said Tejal Shah of Midco Textiles in Kenya. Electricity made up 40 percent of Midco's production costs, compared with 10 percent for textile producers in India.

Negotiators have pledged to give African countries a better chance under new WTO rules now being drafted. But most of the companies would have moved to India or China by then, experts said, leaving Africa to look for another way out of poverty.