IMPACT OF AGOA ON THE TEXTILE INDUSTRY IN MAURITIUS

Transcription

1 IMPACT OF AGOA ON THE TEXTILE INDUSTRY IN MAURITIUS Date Prepared: November 2010 Prepared by: Ms. Lilowtee Rajmun Mauritius Export Association With support from:

2 Executive Summary This report provides a detailed overview on the impact of AGOA on our Textile and Apparel exports as well as the economy at large. It fundamentally shows that AGOA has undeniably contributed to the development of the trade and investment in the Mauritian economy. Moreover, Mauritius is quite a different case as compared to the other Sub Saharan Countries. We had been granted the non-ldc status since implementation of AGOA. After several representations Mauritius was then granted the LDC status in October 2004 and for a longer term as from November This report also shows how the LDC status is important for our region. ======================================= 1. The Performance of the Textile and Apparel Sector: The African Growth and Opportunity Act (AGOA) has been signed in law to stimulate economic growth, to promote a high-level dialogue on trade and investment-related issues, to encourage economic integration, and to facilitate integration into the global economy. Mauritius has seen in AGOA since its inception in May 2000 a critical boost for the Textile & Apparel sector. The textile and apparel (T&A) sector lies at the core of the Export Oriented Enterprises (EOE). As at December 2009 the Textile & Apparel exports amounted to Rs million, representing around 65% of total EOE exports value (Rs million). The T&A industry comprised 189 companies of which 158 manufactured wearing apparels and 31 companies were in the primarily textile sector (spinning, weaving and knitting). The wearing apparel sector employed people whilst the textile sector accounted for 4265 jobs - representing a combined employment of nearly 78% of the EOE sector (58 566). Mauritius has been traditionally geared towards the European market. AGOA through its eligibility to have duty-free/quota-free access to the US market has created the opportunity to diversify our exports and further develop the Textile & Apparel sector. Mauritius has witnessed a consequent increase in T&A exports to US market post AGOA in year For instance, in 1997 before the enactment of the AGOA, T&A exports value to US was Rs 3,196 million as opposed to Rs 8, 804 million in year 2000, post AGOA, representing an increase of nearly 63%. Comparatively, during the same period 1997 to 2000, T&A exports to the EU market was increasing at a diminishing rate.

3 The performance of the Textile & Apparel exports under AGOA can be portrayed on the graph below. Enactment of AGOA LDC Status to Mauritius for one year Enactment of AGOA II (Knit to shape, merino wool) LDC Status to Mauritius till 2012 Extension of LDC Status to 2012 Extension of AGOA Program to 2015 The graph above clearly shows the rise in T&A exports since the inception of AGOA in 2000 till it reached its maximum point in However, the dismantling of the Multi- Fiber Agreement (MFA) and the closures of the Hong-Kong based companies in Mauritius consequently brought a decrease in Mauritian T&A exports. Moreover, until December 2004, Mauritius being a non-ldc country had to have recourse to regional fabrics, findings and trimmings in order to have duty-free access to US. This led to a reduction in the competitiveness of Mauritian products since Mauritius incurred higher costs of production; cost of raw materials from Asian countries was 40% higher. Consequently, in 2008 the T&A exports dropped even lower than in 1997 before the enactment of AGOA. This explained the urge of Mauritian Government to obtain the LDC derogation. Indeed, Mauritius obtained the extension of LDC derogation till December Thereafter, Mauritius had the advantage of exporting synthetic fibers which are not available in the regions and had duty-free access to U.S market for apparel made from fabrics originating anywhere in the world. This resulted in an increase of nearly 3.5% in the T&A exports in 2009, as shown above. =========================================

4 2. Detailed Overview of the Statistics Please find attached. 3. Incentives to the Textile & Apparel sector; (Spinning Mills) The Mauritian Government has launched several pro-active initiatives which were decisive for the spinning mills in Mauritius. These initiatives include: 1) Introduction of a new set of fiscal package, namely: A ten-year tax holiday for spinning companies starting operation before 30 June 2006 Any unrelieved loss (after deduction of profits) incurred by a spinning company during the period of exemption shall be available for carry forward under section 59 of the Income Tax Act. Investors subscribing at least 20% to the share capital of a spinning company, or over Rs. 60 million (whichever is the higher), will be granted a special investment tax credit. They may opt to deduct from their tax payable, 15% of the amount so invested per annum over 4 years or 10% over 6 years. The tax credit will be made available to the investing company right from the year the investment is made and not in the subsequent year as is usually the case Any unrelieved special tax credit may be carried forward for a period of five consecutive income years following the year the investment is made. The deduction allowed in respect of the special tax credit shall be withdrawn if the spinning company has not started operations by 30 June 2006 Land at very concessionary rates at the La Tour Koenig Industrial Estate, which is operated by the State Land Development Company (SLDC) 4.4% registration duty on purchase of land and buildings for industrial purposes Equity fund from the National Equity Fund Ltd to a maximum of Rs 100 million, in the share capital of spinning units depending on the viability of the project and the experience of the promoter Flexibility for the employment of expatriate workers Duty remission on construction materials No customs duty and VAT on raw materials and equipment No tax on dividends No capital gains tax Free repatriation of profits, dividends and capital

5 60% remission of customs duties on the purchase of buses of seats used for the transportation of workers 50% relief on personal income tax for two expatriate staff Duty remission on the import of two cars (maximum duty remission of Rs 500,000 per car) provided the initial investment exceeds Rs 50 million or the project creates at least 200 jobs for Mauritian workers in the first six months. 2) Flexible employment policy with regard to employment of expatriate staff: Recognizing the absence of skills related to spinning, Government has allowed the recruitment of expatriate staff, above the acceptable 3:1 local to expatriate ratio. 3) Concessionary Electricity rates; more flexible tariffs are offered to the spinning mills. There are peak and off peak tariffs which contribute to a reduction in total production costs. ================================================= 4. Socio-Economic Impact of AGOA on the Textile & Apparel sector in Mauritius: The T&A sector economically gained in the following ways: 1. Investment 2. Structure of T&A sector reinforced 3. Regional Integration 4. Impact on related industries 1) Investment: When AGOA was implemented, the T&A sector which existed at that time in year 2000, was already a mature sector. The main characteristic for that sector was that: The focus was on the European market T&A sector constituted of only weaving, knitting and garment making units. These were as per the requirements of double-transformation to meet the European rule of Origin. Spinning operations barely existed with only three units; 2 in the woolen sector, with a capacity of 1890 tons per year and only one denim spinning unit with a capacity of 7200 tons of cotton yarn. At the state of play, the T&A sector could barely meet the criteria for duty-free/ quotafree under AGOA. Mauritius by its non-ldc status had to source from the region or US in order to benefit from AGOA.

6 (a) Setting up of Spinning mills: The region being scarce in the supply of yarn, it propelled the setting up of two cotton spinning plants in Mauritius, namely Tianli Spinning mill and CMT spinning mill. Tianli Spinning mill Tianli Spinning (Mauritius) is a complete Chinese investment and a state-of-the-art spinning unit with an installed capacity of 50,000 spindles. The unit presently produces around 8000 tons of combed and carded cotton yarn. Tianli Spinning employs 314 people, including 293 expatriate workers from China. The setting up of the factory in Mauritius has necessitated a total investment to the tune of Rs million. CMT spinning mill The spinning unit of CMT is now operational and is an exercise of backward integration of the Mauritian owned companies. The installed capacity is spindles and would produce around 8000 tons of cotton yarn annually. An investment of Rs 2.5 billion was required. The above two investments averaged to a total amount of Rs 3,554 million with an additional supply of cotton yarn of tons per year. This backward investment allowed our T&A industry to be vertically integrated. (b) Investment of 3 new garment making plants: During the last year, the Mauritian textile & apparel sector also witnessed the setting up of three garment making units in Mauritius which were aiming at the US market entirely and this investment is mainly due to the LDC status of Mauritius. These three units amounted to Rs 50 million of investment. It led to the creation of additional 488 jobs in the T&A sector. 2) Structure of Textile & Apparel sector being reinforced and better lead time: With the investment created through AGOA provision Mauritius has been able to boost its local production of yarn and fabrics. As per statistics, around 47.8% of yarn required in the T&A sector is produced locally. Similar case applies for fabrics, with 89.6 % produced locally. Most of the imported fabrics are mainly synthetic fabric which unfortunately is not available in Mauritius. Our Mauritian Textile and Apparel sector has thus developed into a vertically integrated one. This has allowed greater flexibility in terms of compliance with changing consumer demands in the local context and has led to shorter lead times/faster response times for the final product.

7 3) Regional Integration: (a) Delocalization: Since its setting up, the textile and clothing sector has maintained the same type of workflow and manufacturing strategy. However, with the emergence of low cost producers on the one hand and the loss of productivity growth coupled with rising costs of production on the other, it was no longer competitive to engage in labour-intensive production in Mauritius. With the enactment of the AGOA some Mauritian operators were able to counter the increased costs of production (Labour Costs) by transferring their labour intensive confectioning to Madagascar to benefit from cheaper labour costs. A look at the statistics from Sub Saharan countries showed that Madagascar quickly outpaced the other Sub Saharan countries and stood as the 2 nd main exporter under AGOA. Out of the total exports of Madagascar the Mauritius companies account for 15-20% of this export. It is also to be emphasized that Mauritius T&A companies in their attempt to delocalize has also prospected Senegal and Mozambique. (b) Sourcing of Raw-Materials from the region: Mauritius in its quest to satisfy the rule of origin, have to buy raw materials from the region. It is to be noted that we have been importing around tons of cotton yarn from India as well as African countries, namely; Tanzania, Mozambique and Mali. As for accessories, Mauritius has also been purchasing its accessories from South Africa. 3) Impact of related industries: The increase of exports under AGOA has undeniably helped to retain the mass within the country. We quickly witnessed the buoyance of ancillary industries. With the increase in trade between Sub Saharan African nations that want to benefit from AGOA there was greater need for transportation and storage. As such, the Freeport as well took advantage of the increased flow of goods and eventually increased their business activities. Moreover, the shipping companies and flights also benefit from the development under AGOA since, both the shipping and airfreight are used for the transportation of finished goods to meet delivery deadlines and overcome the geographical barriers faced by Mauritius.

8 In the same vein, AGOA has thus contributed to the enhancement of the standard of living of the Mauritian population with the creation of employment. 5. Renewal of AGOA & Its Relevant Impact (a) Non-Renewal of AGOA Let us start by making an analogy based on the past experience. Between 2002 and 2005 Mauritius suffered from the dismantling of MFA and the consequent closure of the Hong Kong based companies. These factories were producing entirely for the US market. It engendered a loss of employment of approximately 21,000 people directly and some 60,000 jobs indirectly. It took the Mauritian firms another 4 years to adapt to the US market. We can say that it is only due to the LDC status that the exports to US have picked up. Yet, we have been able to catch up with the level of exports as when the Hong Kong companies were based in Mauritius. Should AGOA not be renewed, the 11.6% exports to US will disappear and ultimately lead to a loss in Mauritius revenue. The consequent impact can be summarized as follows: Export drop by 13.6% Loss of 5313 direct jobs and indirect jobs. Short-fall in foreign currency earning of approximately $100 million. Appreciation of the rupee Cost of living of Mauritian increasing consequently b. Extension of AGOA for 5 years: A temporary extension of AGOA will definitely not help our T&A sector. While we forecast that our exports will sustain for another 3 years, we believe that on the 4 th and 5 th year the exports will start to drop drastically as buyers will search for other permanent sourcing destination. c. Extension of AGOA on a permanent basis: The extension of AGOA on a permanent basis will definitely strengthen the T&A sector of Mauritius. It will build up confidence and sustainability. Mauritius has had a sustained decrease in export over 6 consecutive years. Our exports have started to rise only as from last year. The permanent extension of AGOA will allow the Mauritian owned companies to better understand the US market and work more efficiently with the US buyers.. Eventually, customer loyalty will be established.

9 6. Conclusion: It goes without saying that AGOA is very important for the T&A sector. AGOA should be renewed as well as its LDC-status on a permanent basis. It will not only benefit our Textile & Apparel sector in Mauritius but that of the whole region as it will build consolidation of the sector and regional integration. Confidence will be established at all level which will attract more investment in the region. Eventually, it will lead to a better standard of living for the Mauritian kid as well as its African friends.

10 Description Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Yarn No of Factories: Spinning Mills Total Import (tons) 54, ,310 37, Total Production Capacity (tons) tons Actual Production (tons) Capacity Utilisation (%) 45% 64.50% 64.50% 64.50% 88% 88% Fabrics Weaving No of Factories: Weaving Mills Total Production Capacity () 39.6million 27.8 million 27.8 million 27.8 million 27.8 million 28.2 million 19.4 million Actual Production () Capacity Utilisation (%) 70% 70% 70% 70% 71% 49% Knitting No of Factories: Knitting Mills Total Production Capacity () 74,44 million 50,33 million 50,33 million 50,33 million 50,33 million 50,33 million 50,33 million Actual Production () Capacity Utilisation (%) 67.60% 67.60% 67.60% 67.60% 67.60% 67.60% Total: Knitting and Weaving Local Production :Knitting and Weaving () Total Import () 114 million million 10,9 million million 0.61 million million 13,7 million million 10,98 million million 3,9 million million 2,5 million

11 Garment Making Total Export - Quantity (Sq ) 12 Cotton fabrics Cotton made-ups WG cotton coats Cotton dresses MB knit shirts WG knit blouses Nonknit shirts Nonknit blouses Cotton skirts MB trousers WG slacks Dressing gowns Wool knit blouses MB wool sweaters WG wool sweaters MMF knit shirts MMF knit blouses MMF underwear Total Total Export - (Value ($)) 12 Cotton fabrics Cotton made-ups WG cotton coats Cotton dresses MB knit shirts WG knit blouses Nonknit shirts Nonknit blouses Cotton skirts MB trousers WG slacks Dressing gowns

12 438 Wool knit blouses MB wool sweaters WG wool sweaters MMF knit shirts MMF knit blouses MMF underwear Total Total Export (USD) USD 727 m USD 605 m USD 686 m USD 771 m USD 685 m USD 735 m Mauritius Exports to US total Exports 38.30% 27.00% 17.10% 14.60% 14.90% 13.60% Percentage of Export value on GDP 8.60% 7.50% 7.50% 7.70% 6.70% 6.80% Employment Direct number of employees Indirect number of employees

13 African Cotton & Textile Industries Federation African Cotton & Textile Industries Federation P.O Box , Nairobi Tel: / Fax: info@cottonafrica.com Supported by: