Malawi's government has failed to seal a textile tax-free export extension deal with the Southern African Customs Union (Sacu) which now means over 6,000 jobs in the textile industry in the country face uncertain future, Economic Report can reveal.

The last three-month extension expired last month before a replacement facility had been clinched with Sacu countries. Each extension means a lot to Malawi’s textile industry because it allows duty-free export status. Now textile companies will face heavy tax tariffs when exporting their products in Sadc region.

Sacu comprises Botswana, Namibia, Lesotho, South Africa and Swaziland and four countries —Malawi, Mozambique, Tanzania and Zambia — have since 2000 been allowed to export textiles and garments to the SACU duty free.

Ken Lipenga Minister of Trade, Industry and Private Sector Development in an interview Tuesday confirmed that Sacu said no to another duty free extension because Malawi failed to meet some Sacu requirements. He could not elaborate.

But a top government official told Economic Report that Malawi was dilly-dallying in implementing new common-tariff measures—one of the agreed requirements at Sadc level.

“It appears that common-tariff measures that were supposed to be implemented last year to boost bilateral trade delayed. The Ministry of Finance and Ministry of Trade, Industry and Private Sector Development were supposed to gazette these new common-tariff measures some time back but they failed to do so, that might have been seen in other quarters of Sadc as reluctancy to reciprocate to Sadc agreements,” the source said.

South Africa and the other countries formed Sacu with a common custom tariff policy. Since most of the imported goods enter the sub-region through South African ports, a system of custom revenue sharing is in place. Malawi failed to meet this custom revenue sharing, the source revealed.

Lipenga while not disputing the allegations levelled against his ministry said: “If that is the case then there is always a way that this problem can be solved, but we believe we were reciprocating and we will continue to talk to our colleagues in Sacu to find a solution”.

He said it was unfortunate that efforts to meet Sacu officials were not successful and that the end result has not been good for Malawi.

“However we did our part we managed to get two extensions—the first six months extension which ended in December last year and the other one that has just expired in March. We will in the in the interim be exploring other possibilities, but we know it will be difficult.

“Currently my ministry is negotiating with our American counterparts in the America Growth and Opportunity Act (Agoa) to see if Malawi can expand on that market but we know there is stiff competition in Agoa because of Chinese textile imports. But we will still try these possibilities, it’s not really over for us and it’s unfortunate that our efforts have not been successful,” said Lipenga.

A source at Knitwear Industries in Blantyre said it has has been tough going for most textile companies in the country for the past year largely because it is not easy to find new markets.

“Of late, most knitting companies have gone into T-shirt manufacturing and printing business because that’s where markets are readily available. So far Knitwear has withstood the pressure because it has ready markets for zitenje locally, and for other products such as finished cloth in South Africa and Asia,” said the source. His new chief executive officer Pracash Konnul, who has replaced Kantal Desai, was not available for comment.

But Lipenga agrees that failure to get a new deal on duty free exports in Sacu will now threaten the 6,000 jobs available in the textile and garment manufacturing sector in the country.

“Despite Malawi benefiting from AGOA, Sacu remained an important export market for the country's textiles,” he said.

Anther condition that was set for the extension was that Sadc, of which Sacu is a part, exporters attained capacity for a “double transformation” regime in line with the Sadc Trade Protocol.

Double transformation meant that a country should have the capacity to produce fabrics and garments for such garments to enjoy preferential market access under regional trade terms. This was to avoid trade in textiles and garments from outside Sacu or exempted countries like Malawi from benefiting from the tariff-free trade.

Malawi’s export quota of textiles and garments was at 12.5 million tonnes.

In June 2006 Sacu granted Malawi a six-month extension when the textile deal expired. Namibia, Botswana, South Africa, Swaziland, Mauritius and Zimbabwe fall in the current category of Sadc member states required to meet the double transformation criteria.

Until 2005, Least Developed Countries (LDCs) such as Malawi, Angola, the Democratic Republic of Congo, Lesotho, Mozambique, Tanzania and Zambia were expected to meet a less stringent “rule of origin” of single transformation to enjoy preferential access to regional markets.

These countries are now required to upgrade to double transformation regime. The Sacu agreement is ad hoc as Sadc member states await for the trading bloc to become a free trade area in 2008.

Latest AGOA Trade Data currently available on AGOA.info


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

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