TRALAC - Trade Law Centre

Tanzania: Trade Liberalization and its Effects on Local Textile Industries

Thursday, 22 March 2007

Source: IPP MEDIA

In the era of centralised planning whereby the state was the major investor, it developed a huge textile sector which processed cotton into yarn, textile and garments. The state had over 15 textile factories using locally grown cotton as the major raw material.

These included the Friendship Textile Mill, Ubungo Spinning Mill, Ubungo Garments Ltd, Blanket Manufacturers Ltd, Sungura Textile Mills and Kiltex, all based in Dar es Salaam.

Others were Mwatex, Mutex and Motex located in Mwanza, Musoma and Moshi respectively, while othere were MbeyaTex (in Mbeya), Morogoro Canvas Mill (Morogoro) and Tabora Spinning Mill (Tabora).

The textile sector contributed significantly to the share of the manufacturing sector to GDP and was a major employer of skilled and semi-skilled labour.

Since trade liberalisation in 1986 import controls were abolished as well as import confinement which had given the Board of Internal Trade (BIT) companies monopolies to import goods of mass consumption.

In that wake, there was a flood of imports of textiles and garments from South-East Asia which were of better quality and more competitive prices than locally produced textiles and garments.

Some textile companies were privatised and rehabilitated but performance has not been impressive for what business associations call unfair competition or dumping. The textile sector no longer contributes significantly to employment creation and income-generating opportunities.

A recent study by the Economic and Social and Research Fund and CUTS on Trade and Development (TD) cites the negative impact of trade liberalization on the textile sector.

The study notes that the impact of trade liberalization in Tanzania like in many developing countries has been negative on import competing industries mostly manufacturing and positive on non-traditional export industries.

The textile sector has emerged as a loser in the policy of trade liberalization as the TD study indicates.

There is a surge on import of textile in Tanzania which widen the trade balance given the lesser growth of exports, and the instances of dumping of second-hand clothes and other products.

This hurts the local textile industry and increases joblessness for the majority of women.

The study notes that the textile and cotton sectors display strong export orientation in terms of the share of domestic output that is sold abroad but also has high effective rates of protection.

The export potential of the sector arises from the large share of export sales to industrialised countries� markets under preferential access conditions including AGOA (of the USA) and EBA (European market).

It is indicated in the study that textiles made up about one fifth of the dutiable exports from Tanzania to the US in 2002 � 2003.

Some type of textiles can be under competition from cheaper imports and high costs of production, especially due to high taxes and transportation costs.

The textile sector had been one of the strongest growth sectors in Tanzania and was one of the largest employers, leave alone that it was also the third largest source of government revenue and exporter, and cotton was the second most important export crop.

The sector which is labour intensive with numerous value adding and a long supply chain, has been cited by experts as a typical failure of trade liberalization. It is one of the most hard hit sectors by the trade liberalisation since the net effects are generally negative.

Another study conducted by ESRF showed that there have not been effective complementary policies to support the ailing sector out of cut-throat competition as it has a number of structural constraints.

The study noted that different value chains are affected differently or more less than others depending on their position in the supply chain. Despite several trade initiatives, textile exports have not improved while imports have surged more than before.

As a result of trade liberalization, protection granted to the industry was removed and the sector was exposed to intense competition that led to notable decline in production and closure of some of the firms.

The study also indicates that decline in production had notable effects on the labour markets in three aspects. There is marked decrease in labour demand and hence low level of formal employment and wages, given cut in production and factory closures.

In the aftermath of liberalization effects, production in the textile sector has become less labour intensive due to increased reliance on automated and computerized technology.

After trade liberalization the textile sector is characterized by frequent industrial disputes and labour unrests indicating that industrial organization issues are important in gauging the poverty reduction impacts.

The study also tried to identify winners and losers in the textile sector after liberalization by examining how it has affected different agents in the supply chain. These agents include cotton farmers, transporters, ginneries, textile factories, workers and the government.

Cotton farmers are net losers from liberalization and victims of poverty.

Transporters have benefited from liberalization as they are linked in the chain by ginneries, middlemen and factories. Textile mills and factories are losers of liberalization and �orphans� of industrial policy.

After liberalization the government lost tax revenue because production ceased in the sector and there was no contribution to poverty reduction.

Globalisation forces abound and the government lost the textile industry and hence tax revenue to finance social services.

The ESRF study indicated that liberalization has had severe impacts on textile workers and cotton farmers as cotton was the major input of the textile industry.

The most critical impact has been the collapse of the textile sector effects of which radiate across and became a net loss to those without options.

The sector can benefit from trade preferences offered by AGOA, EBA and potential EPAS and Regional Trade Agreements (RTAs). But performance of the sector has not matched that of the 1970s.

Adverse effects of trade liberalisation on textile industry can be corrected and benefits can be realized. Complementary policies are required to revamp the sector and this includes infrastructure and utilities.

A regulatory framework is needed as well as better extension services, access to finance and favourable fiscal and industrial polices.



“Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Tanzania’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.