African Cotton & Textile Industries Federation (ACTIF) Hevea Park, Office Block D, Lower Kabete Road PO Box , Sarit Centre, Nairobi, Kenya

Transcription

1 African Cotton & Textile Industries Federation (ACTIF) Hevea Park, Office Block D, Lower Kabete Road PO Box , Sarit Centre, Nairobi, Kenya FINAL REPORT ON THE COMPETITIVENESS OF THE SSA COTTON, TEXTILE & APPAREL SECTORS IN COMPARISON WITH SELECTED ASIAN LDC COUNTRIES Prepared by Charmy Investment Limited Kenya Reinsurance Plaza, Mezannine Floor, Taifa Road Nairobi, Kenya P.O. BOX , NAIROBI TEL: ; Mobile FAX charmyinvestments@yahoo.com chemengichmail@yahoo.com March 2011

2 Acknowledgement Charmy wishes to take this opportunity to acknowledge the authors of the country AGOA and Textile impact reports for Kenya, Ethiopia, Mauritius, Lesotho, Swaziland and S. Africa, Asian LDC countries Bangladesh, Cambodia and Vietnam which formed the basis of this report. Special thanks also go to ACTIF for their comments and guidance during the preparation of this report. ii

3 Contents Executive Summary INTRODUCTION Background Objectives Methodology COMPARATIVE ANALYSIS OF THE PERFORMANCE OF AGOA IN THE AFRICAN COUNTRIES AND SELECTED ASIAN LDC COUNTRIES Export Performance SSA and Asian LDC Investment Trends in Textile and Apparel Industry Production Capacities Competitiveness of the Textile and Apparel Sectors in SSA and Asian LDCs Challenges Facing Africa and Asian Countries in Exploiting AGOA Opportunities Socio-Economic Impact of AGOA... Error! Bookmark not defined Employment Linkages and Impact on Related Industries Export Earnings Impact on GDP Regional and Global Integration Government Investment Incentives IMPACT OF AGOA BEYOND Indicators of Measure Investments Production Employment Export Performance Contribution to GDP Projected Impact If AGOA Is Extended On Short Term Basis, I.E. Under 5 Yrs. (Africa vs. Asian LDC s) Projected Impact If AGOA is extended Beyond 2015 on Permanent basis (Africa vs. Asian LDC s) RECOMMENDATIONS Extend the period of AGOA and AGOA IV beyond 2015: CONCLUSION References Annexes iii

4 Tables Table 2.1: Table 2.2: Table 2.3: Exports to US under AGOA / GSP provisions for selected Africa AGOA eligible countries Compared with Trade of USA- Asian LDC countries, (US $ 000) Comparison of USA Textile Imports from SSA and selected Asian Countries, , (USD millions) Textile and Apparel Export Performance under AGOA and post MFA expiry among SSA vs Asian LDC countries, Table 2.4: SSA and Asian LDC Key Textile and Apparel Export Destinations, (%) Table 2.5: Investment Trends in Textile and Apparel Industry, (USD millions) Table 2.6: No of Firms Exporting Textile and Apparel, Table 2.7: Table 2.8: Table 2.9: Level of integration along the textile and apparel production chain Competitiveness of SSA and Asian LDC Textile and Apparel Industry Transport Infrastructure Quality in Selected African and Asian Textile and Apparel Producing Countries Table 2.10: SSA and Asian LDC Employment, Table 2.11: Linkages and Impact on Related Industries Table 2.12: Regional and global Integration Table 2.13: U.S. Trade with Sub-Saharan Africa ($ Millions) Table 2.14: SSA & Asian LDC Government Incentives Figures Figure 2.1: Comparison of USA Textile Imports from SSA and selected Asian LDC countries in 2005 Figure 2.2: Comparison of USA Textile Imports from SSA and selected Asian LDC countries in 2009 Annexes Annex 1: Textiles and Total Export Destinations (Value in US $ Million) Annex 2: GDP, GDP Per Capita, GDP Growth Rates and Exports of Selected SSA and Asian Countries Annex 3: Key Textile and Apparel Exports, Annex 4: Log frame on Aggregated Analysis of the Performance of AGOA in the African Countries in relation to the selected Asian Countries-taking into account investment environment and incentives Annex 5: Imports from Various Regions Before and After the End of the MFA, 2004 vs Annex 6: References iv

5 Executive Summary BACKGROUND The African Growth and Opportunity Act (AGOA), United States Trade Act, is a unilateral trade programme that significantly enhances U.S. market access for (currently) 41 Sub-Saharan African (SSA) countries. The Act originally covered the 8-year period from October 2000 to September 2008, but amendments signed into law further extended AGOA to 2015 while the use of the 3 rd country fabric provisions expire in Objective of study Apart from a few SSA countries endowed with oil and minerals, the other major beneficiary sector since the passing of the AGOA has been the textile sector until January 1, 2005 when the MFA expiry eroded AGOA textile preferences. The net beneficiaries have been China and Asian LDC countries. And yet AGOA has been the lifeline of the cotton, textile and apparel industry in SSA. Non-extension of AGOA beyond 2015 spells doom for SSA cotton, textile and apparel sectors. It is prudent to address what needs to be done for SSA textile and apparel industry to attain a level playing field and benchmark its competitiveness to that of its Asian counterparts whose efficiency comes along with better competitive prices; facilitate better negotiations at the international trade and development forums including lobbying the US Congress to continue with AGOA benefits; identify actions to be dedicated to the specific concerns of the industry; and promote improved competitiveness in both the regional and global market place. The collective voice of the SSA textile and apparel producers is to lobby the US Congress to: (i) Extend the period of AGOA and AGOA IV beyond 2015 to promote SSA cotton sector as originally intended; (ii) Extend the period of the third country fabric provision; (iii) Defer the introduction of duty free quota free (DFQF) status to Asian LDCs as it would undermine the purpose of AGOA and AGOA IV. (iv) Demonstrate that delays of timely rescue packages that guarantee AGOA extension shall: Negate the intention of AGOA to alleviate poverty via Trade not Aid. Inadvertently remove the motivation to build an African Fibre, textile and apparel value chain. Not only discourage new investments, but reverse the development of apparel manufacturing capacity of SSA that has resulted from AGOA. Create unfair competition if DFQF status is extended to Asian LDCs. 1

6 COMPARATIVE ANALYSIS OF THE PERFORMANCE OF AGOA ON SSA AND SELECTED ASIAN LDC COUNTRIES (a) Export Performance and Market Access AGOA s transformative effect on the SSA economies has opened up new frontiers of engagement with USA; stimulated a comprehensive set of business environment and investment reforms in order to benchmark with international best practice; increased FDI inflows as well as expanded trade in textile and apparels. The textile and apparel exports to the US market increased from US $ 748 million in 2000 to $1,757m in 2004 but have since declined to US$ 922 in 2009 after the expiry of the MFA in 2005, and yet AGOA is still in place (Table 1). Table 1: Comparison of USA Textile Imports from SSA and selected Asian Countries, Imports ($ millions) 2004 Imports ($ millions) 2009 Imports ($ millions) % change SSA 748 1, % Total-Asian LDC 2,971 5,989 10, % Bangladesh 2,116 1,998 3, % Cambodia 808 1,429 1, Vietnam 47 2,562 5, Source: US Dept of Commerce, Office of Textiles and Apparel The Asian LDC countries though not beneficiaries of AGOA, expanded their exports substantially soon after expiry of MFA (Table 1). The three Asian countries (Cambodia, Vietnam and Bangladesh) combined exports are more than 10 times the value of textile and apparel in comparison with all African countries combined. By 2009 the SSA countries exported a paltry 8% (Figure 2) compared to huge proportions of single selected Asian countries such as Cambodia (45%); Bangladesh (30%) and Vietnam (17%) compared to 20% in 2005 (Figure 1). The US market remains critical for the SSA countries accounting for up to 90% of most SSA country exports. The USA market erosion for the SSA region is likely to get worse with adoption of the new legislation to reform US trade preference programmes to expand duty free quota free eligibility to non-agoa LDC countries- including Bangladesh and Cambodia. Further, the conclusion of the US -Trans-Pacific Partnership (TPP) (FTA) - with a group of Pacific Rim countries including Vietnam will intensify competition for SSA countries. It is urgent for the SSA countries to position themselves and present their case for continued AGOA preferences for consideration within the frameworks of these negotiations otherwise the AGOA benefits accumulated so far stand to be lost forever. The SSA textile and apparel sector as well as the livelihoods of the many in the cotton, textile and apparel value chain will come to an end. The MFA expiry has already cost Africa more than 250,000 direct jobs over the last few years and twice as many indirectly mainly in Lesotho, South Africa, Swaziland, Nigeria, Ghana, Mauritius, Zambia, Madagascar, Tanzania, Malawi, Namibia and Kenya. Those most affected are women. 2

7 Figure 1: Comparison of USA Textile Imports from SSA and selected Asian LDC countries in 2005 F i g u r e 2 : C o c Figure 2: Comparison of USA Textile Imports from SSA and selected Asian LDC countries in 2009 (b) Investment Trends The response of the global private sector to AGOA was their confidence of investing in Africa given the assured market access into the USA. The Asian and Chinese companies invested in large numbers in Africa to take advantage of the AGOA provisions. Most these companies have since relocated out of Africa to their home countries which promise more competitive opportunities in the post MFA. S. Africa, Ethiopia and Mauritius textile sectors weathered MFA effects since most of the investors were local. 3

8 (c) Production Capacities The continued revival of the cotton, textile and apparel industry in SSA remains dependent on secured AGOA preferential market access. The uncertainties associated with short term horizons discourage expansion of capacities. Further, on the basis of the Asian LDC experiences, the future of the textile industry in SSA depends on expanding local investment complemented by foreign investors, including aggressive investments in infrastructure and the development of the cotton-textile value chain. The SSA countries are also characterized by lack of inputs. Consequently there is need to extend the use of Third- Country Fabric rule of origin, to allow for the revival of cotton growing, ginning, spinning and weaving. At present 90% of the apparel imported from SSA under AGOA is made from third country fabric. There is every likelihood that the AGOA beneficiaries shall not have developed the requisite capacity by 2012 to use local fabrics. (d) Socio-economic impact Besides employment, AGOA created opportunities for workers to learn lifelong skills, development of integration and cross industrial linkages including diversification of export revenue streams. The new sector of textiles was integrated into the global economy. The participating companies can now benchmark their practices to globally accepted practices. The role of the private sector in SSA was entrenched into the development making processes. AGOA has also assisted in building the regional chain beyond the context of the existing regional integration frameworks. During its first five years ( ), the textile and apparel component had created over 300,000 direct new jobs and twice as many jobs indirectly as well as doubling the apparel exports. Of interest is the fact that the new jobs were predominantly for women and first time employees who otherwise had no opportunities for formal employment in other sectors of the economy. In all an estimated 5-10 million Africans were positively impacted by AGOA. CHALLENGES OF THE COMPETITIVENESS OF THE COTTON TEXTILE AND APPAREL INDUSTRY IN SSA COMPARED TO ASIAN LDCS Limitations on Production Capacities, Market Access and uncertainty of the future of AGOA Besides limitations on SSA production capacities, the combined effects of loss of market access preferences and the short-term nature of reauthorization of AGOA has served to undermine the SSA textile industry that had been created through AGOA initiative. This has been made worse by relocation of foreign investors and the lack of additional investments. There is every likelihood that the AGOA beneficiaries shall not have developed the requisite capacity by 2012 to use local fabrics. The future of the textile industry in SSA depends on expanding local investment complemented by foreign investors. Other challenges that the SSA textile sector continues to face include further global liberalization, narrow range of traded textile products; inadequate capacity for compliance with 4

9 standards and market related demands, marketing and promotion programmes, and weak institutions. Limitations of product range The African product range is very narrow, in which close to 85% of the total textile and apparel exports are made of three products (knit shirts, woven shirts and trousers) in comparison to the Asian LDC whose exports constitute as little as 20% for the same product lines. Loss of socio-economic benefits The socio-economic benefits coming along with increased employment, diversification of export earnings, cross industrial linkages shall be lost on a permanent basis without facilitation from AGOA Lack of Competitiveness The SSA region has demonstrated in the last ten years that it has the potential to participate in the global textile industry, if given preferential treatment. However, its underdeveloped cotton, textile and apparel sectors have resulted in low value addition content, denying the continent the socio-economic benefits of the cotton textile trade. Poor infrastructure conditions (Table 2), such as inadequate and costly electricity, poorly maintained road networks, and limited access to international shipping, undermine the competitiveness of SSA textile and apparel exports by increasing production costs and limiting speed to market. However, some SSA countries, particularly those in southern Africa, do benefit from relatively better infrastructure conditions. Other challenges include outdated or low quality production technology, poor logistics and support incentives, limitations on manpower skills and associated low productivity. Country Table 2: Competitiveness of SSA Textile Industry Electricity (US$/KWh Transportatio n-road density Labour costs (US$/HR) 5 Productivi ty Technolog y use Business environment Kenya Low Low Weak Ethiopia 0.70 Low Low Weak Lesotho Low Low Weak Mauritius High High Stable South Africa High High Stable business environment Swaziland Medium Low Vietnam High to Moderate Stable moderate Cambodia Moderate Low Stable Bangladesh High High Stable Benchmarks China High High Stable India High High Stable Source: Country Reports/Internet The Asian LDCs have facilitated the productive sectors through extension of lucrative cash and non-cash incentives and guarantee schemes; maintenance of stable business environment,

10 provision of reliable and adequate infrastructure and adoption of modern technology for production and communication. Technology and skills gaps Use of low quality technology coupled with persistent shortages of skilled manpower in some trades compromises productivity and quality of products particularly in the SSA countries. PROJECTED IMPACT OF AGOA BEYOND 2015 The impact of AGOA beyond 2015 shall been analysed in two scenarios (Table 3) ; that of extending AGOA on short term basis and extension on permanent basis, taking into account the ongoing further reforms of the American trade policy regimes. (a) If AGOA is extended for a short term say 5 years Extension of the AGOA on short term basis shall be of no consequence, given the experience on the ground, whereby a number of companies have either relocated or closed down. The buyers have equally moved to the East and elsewhere for their sourcing. Additional investments are likely not to take place unless production is geared for the domestic and regional markets. In this regard countries like Ethiopia and S. Africa are the only ones that might report textile and apparel growth owing to their inherent strengths in this sector. The Asian LDC countries that are favoured by the opening of the global market through MFA will consolidate their hold in the US market at the expense of SSA. (b) If AGOA is not extended at all In the event AGOA is not extended beyond 2015, the SSA textile and apparel sectors including support industries are likely to close down. This follows from company flight arising from MFA expiry and the likely further liberalization in trade reforms under discussion in US Congress. There will be no incentive to deepen the cotton-textile chain. Since the Textile and Apparel sector is by far the largest industrial sector in some countries like Lesotho, its decline would definitely send a major shock wave throughout such vulnerable economies. Non-extension of the AGOA beyond 2015 will definitely see the end of the vibrant textile industry and associated industries in the region. As stated earlier, Asian countries global market share shall expand. 6

11 Table 3: Projected Impact of AGOA Beyond 2015 (USD millions) If AGOA is not extended If AGOA is extended Country Indicator Kenya Exports into USA Employment (No) 21,060 13,900 9,174 30,234 43,235 Investment/No of Firms Contribution to GDP, % Ethiopia Exports into USA Employment (No) 46, , ,283 56,169 67,392 Investment/No of Firms Contribution to GDP, % Lesotho Exports into USA Employment 36,100 29,241 23,685 43,320 51,984 Investment/No of Firms Contribution to GDP, % Mauritius Exports into USA Employment.. Investment/No of Firms Contribution to GDP, % South Africa Exports into USA 5,590 9,780 17,120 10,900 21,260 Employment 58,900 47,709 38,644 88, ,108 Investment/No of Firms Contribution to GDP, % Swaziland Exports into USA Employment 13,600 6,800 3,400 Investment/No of Firms Contribution to GDP, % Employment Madagascar Exports into USA Employment.... Investment/No of Firms Contribution to GDP, % Vietnam Exports into USA 10,930 18,000 25,000 18,000 25,000 Employment (No) 2,520,000 2,750,000 3,000,000 2,750,000 3,000,000 Investment/No of Firms. Contribution to GDP Cambodia Exports into USA 700 1,450 3,010 1,090 1,850 Employment 274, , , , ,637 Investment/No of Firms Contribution to GDP, % Bangladesh Exports into USA 10,000 12,000 14,000 16,000 20,000 22,000 14,000 16,000 20,000 22,000 Employment 2,500,000 3,500,000 4,500,000 3,500,000 4,500,000 Investment/No of Firms 9,027 10,061 11,214 10,061 11,214 Contribution to GDP, % Source: Consultants Projections NA 7

12 PROPOSALS ON WAY FORWARD The combined effects of DFQF treatment of apparel from non-agoa LDC countries, FTAs with the Pacific Rim countries, the termination of the 3 rd country fabric for SSA countries by 2012 and the uncertainty of the continuation of AGOA beyond 2015 all serve to diminish the SSA apparel industry revived through AGOA. USA imports from Asian LDC countries have risen sharply since 2005 while those from SSA have nosedived. Recommendations for the way forward are at two levels; country level and extension of AGOA Trade Act. Priority is given to actions to be taken within the context of reforming the AGOA Trade Act. For AGOA to remain the cornerstone of US-Africa economic policy and trade relations, addressing poverty, there is urgent need to revisit the overall AGOA framework within the context of the global WTO commitments, proliferations of FTAs and ongoing deliberations to reform the US trade policy. In particularly there is need to lobby the US government to: Sustain the original intention of AGOA to alleviate poverty via Trade not Aid. Maintain the momentum and motivation that has picked up to re-build the African Fibre, textile and apparel value chain. Sustain the socio-economic benefits so far generated Continue giving hope to the foreign new investments, and the development of apparel manufacturing capacity of SSA that has resulted from AGOA. Facilitate continued integration of SSA to the global economy Safeguard SSA from unfair competition if DFQF status is extended to Asian LDCs. In this regard, there is need to: 1. Extend the period of AGOA and AGOA IV beyond 2015: (a) To promote SSA cotton sector as originally intended Extension of AGOA beyond 2015 will promote SSA cotton and textile sector along the whole value chain as originally intended. This will remove the uncertainties associated with the short term reauthorizations which have not given confidence, stability and predictability to investors, buyers and those securing their livelihood from the cotton-textile sectors. Even at the height of AGOA performance, SSA textile and apparel trade with USA accounted for less than 3% (AU, 2005). And as such, SSA textile and apparel exports into the American market will not distort the market. Extension of AGOA on a permanent basis is preferable option. This will provide the necessary confidence to: i. Attract investors and buyers to continue investing and sourcing from SSA; ii. Build sustainable local capacities, similar to the stability of the textile and apparel sectors in the Asian LDC countries, S. Africa and Ethiopia where local investors is substantial; iii. Secure the employment opportunities on permanent basis; iv. Sustain the ongoing reforms and investments in the cotton-textile chain; 8

13 v. Deepen the regional integration agenda at pan-african level; vi. Facilitate SSA meets commitments under original intention of addressing poverty challenges through trade and not aid. (b) Extend the period of the third country fabric provision beyond 2012 The key to AGOAs success in spurring the development of the apparel sector in SSA has been the use of the third-country fabric RoO which allows LDC AGOA beneficiaries to use yarn and fabric from any part of the world, as opposed to other preferential programmes which are based on strict forward yarn-fabric linkages. This flexibility of use of third country fabrics has served as great incentives for US buyers to source quality fabrics from SSA. Vietnam and Bangladesh textile sector thrives on use of imported inputs including fabrics. There is an urgent need to extend this provision, preferably on a permanent basis, pending development of the chain. This will go a long way to i. Allow SSA countries to continue producing same quality products for the American market; ii. Allow the SSA countries further develop the cotton textile sectors; iii. Allow SSA countries develop specialization on best competences; and iv. Or provide for at least a minimum period of 10 years, to allow for the development of the requisite capacities along the chain. (c) Extension of AGOA to non-sensitive Textile Products While the continued use of third-country fabric has facilitated SSA textile trade with US in the short to medium term, it has nevertheless constrained the SSA vertical integration of the cotton-textile-apparel value chain. Additional incentives need to be explored in non-sensitive textile products to diversify the African textile export sector. Additionally, there is need for an expanded list of potential textile production to incorporate unique textile products. In this regard, it will be necessary to determine the additional product lines. Consequently, there will be need to: i. Joint (SSA/US-ITC) to determine non-sensitive non-apparel products not import sensitive in the US market that could benefit from AGOA; ii. Build flexibility of the requirements to process all non-apparel products in LDC countries (d) Review of the AGOA rules of continued eligibility, in particular terminal sanctions on political ground as was the case for Madagascar in 2009 The need for sustained governance for continued eligibility is welcome requirement for entrenching sustainable and predictable rules and accountability. Investor s goodwill is demonstrated through initiatives of cross country investment in the region, given that AGOA provided for sourcing from within the region. S. African companies relocated to SADC and SACU regions to take advantage of AGOA. In this spirit Mauritius investors relocated a number of their production facilities to Madagascar to service Mauritius based industries as well as 9

14 building the Madagascar textile industry. With the suspension of Madagascar from accessing AGOA benefits on account of nondemocratic practices, the innocent Mauritius investors and the 30,000 workers have had to pay the price. There is need to look for more targeted sanctions to bring to book those individuals responsible for nondemocratic principles. In this regard AGOA should strive to: i. Come up with more flexible sanction mechanisms in the innocent are not subjected to unnecessary burdens; ii. All-or-nothing rule of compliance be reviewed to scale sanctions based on crimes committed iii. Continue to support the regional and pan-africa integration agenda (e) Greater Support for Regional Economic integration and Industry Competitiveness The US economic programmes for Africa, including Millennium Challenge Account, USAID projects and the African Development Bank, should now prioritise on measures to support the private development, such as industrial infrastructure development, building value chain competitiveness (as is the case in Cambodia and Haiti), helping the SSA customs administrations to tackle the smuggling of textile and apparel into SSA countries and concerted efforts to supporting regional economic integration through trade and investment.. (f) Encourage Sourcing from Africa With successes of AGOA since 2000, there is an urgent need to further institutionalize preferential arrangements for continued sourcing from Africa. These commitments should be similar to the global responses to source more from Haiti after the devastating earth quake are good demonstration of unique targeted support other than Aid. Africa stands to benefit the poor with continued implementation of AGOA which has inbuilt provisions for sourcing from the continent. (g) Continued TA to build the capacity of SSA textile industry through USA Hubs Besides the private sector initiatives, USAID through respective hubs build the requisite institutional and firm level capacities to facilitate exporters meet the US market requirements. This support needs to be enhanced especially during this period of heightened competition. 2. Extend the period of the third country fabric provision The key to AGOAs success in spurring the development of the apparel sector in SSA has been the use of the third-country fabric RoO which allows LDC AGOA beneficiaries to use yarn and fabric from any part of the world, as opposed to other preferential programmes which are based on strict forward yarn-fabric linkages. This flexibility of use of third country fabrics has served as great incentives for US buyers to source quality fabrics from SSA. There is an urgent need to extend this provision pending development of the chain, preferably on a permanent basis to: 10

15 i. Allow SSA countries to continue producing same quality products for the American market ii. Allow the SSA countries further develop the cotton textile sectors iii. Or for at least minimum period of 10 years, to allow for the development of the requisite capacities along the chain. In any case, the biggest players in the textile sectors do not necessarily grow their own cotton. The Asian LDCs are a case in point. Bangladesh among the top ten exporters grows less than 2% cotton to meet its own industry requirements. In addition Cambodia specializes on CMT for the bulk of its textile needs. 3. Defer/postpone the introduction of DFQF status to Asian LDCs as it would undermine the purpose of AGOA and AGOA IV. (a) Protect AGOA from being undermined by ongoing USA preference reforms (TPP) and FTA arrangements The policy rationale for trade preferences is to assist non-competitive developing countries to become competitive via duty free preferences. With expiry of MFA in 2005, the more competitive Asian LDCs, Bangladesh, Cambodia and Vietnam, are eating into the SSA market share in the US AGOA market. Consequently, the ongoing negotiations for extension of DFQF to Asian LDCs, will only serve to destroy the remaining textile-apparel African sector. While AGOA was signed by individual African countries, the dire need of rescuing the revived cotton-textile-apparel sector, has led to the establishment of ACTIF to consolidate the voice of the SSA textile and apparel producers to lobby the US to: i. Introduce temporary quotas on Asian LDCs to allow SSA textile growth; ii. Reform the AGOA along the EIAP provisions given to Haiti; iii. Seek waivers jointly with SSA counties from WTO under SDT iv. Provide special incentives for US buyers to continue to source from Africa v. Defer/postpone the introduction of DFQF status to Asian LDCs as it would undermine the purpose of AGOA and AGOA IV. (b) Safeguard the socio-economic benefits of AGOA against: i. Negate the intention of AGOA to alleviate poverty via Trade not Aid through ensuring continued: Employment opportunities Export Revenues for government services ii. Inadvertently remove the motivation to build an African Fibre, textile and apparel value chain; leading to : Loss of Production Capacities among others iii. Not only discourage new investments, but reverse the development of apparel manufacturing capacity of SSA that has resulted from AGOA. iv. Create unfair competition if DFQF status is extended to Asian LDCs. (c) Deter Unfair trade Practices 11

16 Besides efficient high productivity and low cost production process, one of the reasons Asia is winning apparel market share at Africa s expense can be traced to various unfair trade practices by the Asian apparel producing nations, including export subsidies, currency manipulations and violations of intellectual property rights (e.g. violations relating to African ethnic designs). The US administration should investigate and apply appropriate remedial actions against such trade practices. CONCLUSION SSA countries have benefitted immensely from AGOA market opportunities especially in the textile and apparel sector. However, the socio-economic developments ushered in by AGOA have been eroded substantially from the MFA expiry which exposed the SSA countries to intense competition from the more efficient Asian LDC countries. But there is hope especially now that SSA countries are taking on pan-african approach to salvage AGOA. ACTIF should not tire in presenting SSA case to the US congress. Continued AGOA benefits shall facilitate the SSA countries built the requisite capacities to produce for trade in the various RECs and EAC. At the country level, SSA countries have to address their competitiveness in the manufacturing sector in addressing national level poor infrastructural conditions and high input costs; low productivity levels; inefficient flow of goods and services and unfavorable business environment with a view to benchmarking to international best practice; enhance the efficiency of the transport and related service sectors of the ports, sustain technical skills trainings in order to increase productivity, investment incentives, and sustain reforms in the business environment and business climate including exploring the option of commercial representation in the US market. Further, the cotton-textile chain has to be developed in a wholesome way. 12

17 Acronyms: ACTIF- African Cotton & Textile Industries Federation AGOA- African Growth and Opportunity Act DFQF- Duty free Quota free EAC- East African Community EDP- Export Development Program EPZ- Export Processing Zones ERS- Economic Recovery Strategy FDI- Foreign Direct Investment GDP- Gross Domestic Product GSP - Generalised System of Preferences LDC- Least developed Countries MFA- Multi Fibre Agreement SSA - Sub-Saharan African UNDP- United Nations Development Programme TPP - Trans-Pacific Partnership FTA- Free Trade Agreement RMG - readymade garment FY- Financial Year EU- European Union EOE - Export Oriented Enterprises EIAP- Earned Import Allowance Programme RMG- Ready Made Garments 13

18 1.0 INTRODUCTION 1.1 Background The African Growth and Opportunity Act (AGOA), United States Trade Act which came into effect in 2000, is a unilateral trade programme that significantly enhances U.S. market access for (currently) 41 Sub-Saharan African (SSA) countries. It builds on existing U.S. trade programmes by expanding the (duty-free) benefits previously available only under the Generalised System of Preferences (GSP) program. Duty-free access to the U.S. market under the combined AGOA/GSP program stands at approximately 7,000 product tariff lines, including the roughly 1,800 product tariff lines that were added to the GSP by the AGOA legislation. Whereas the act originally covered 8 years, it has been extended to 2015 to take into effect SSA country requests, given the positive response from both local and foreign investors expanded investments to take advantage of the AGOA initiatives. The use of the 3 rd country fabric provisions expire in The end result of AGOA is to promote: Increased trade and investment between the United States and sub Saharan African countries; Economic development and reform in sub Saharan Africa; and Increased access and opportunities for U.S. investors and businesses in Sub Saharan Africa. Both local and foreign private sector investors responded positively to the AGOA initiative. Foreign investors set up businesses in the continent. The buyers also started sourcing on more long term basis from the region. This in effect assisted African based businesses to benchmark their capacities, quality and related delivery logistics to best practice. In the textile and apparel sector, more than 300,000 direct jobs and twice as many indirect jobs were created in the industry. Of interest is the fact that the new jobs were predominantly for women and first time younger employees in the informal sector that otherwise had no opportunities for formal employment in other sectors of the economy. The lives of an estimated 5-10 million Africans were improved by AGOA. AGOA has also assisted in building the regional chain beyond the context of the existing regional integration frameworks. The SSA region in general has sustained positive growth rates in the last 10 years. The last 5 years in particular recorded minimum of growth rates of 5% over a five year period (1/3 based on extractive industries and 2/3 coming from structural changes), with performance slowing down in 2008 due to financial crisis (World Bank, 2010). This period has also been characterized by increased trade and investment from both local and foreign investors. With the expiry of MFA provisions- leading to substantial liberalization of the textile and apparel sectors in compliance with WTO rules-, the SSA textile and apparel trade has declined substantially. The net beneficiary has been China and Asian LDC countries. AGOA has been the lifeline of the cotton, textile and apparel industry in SSA. Non-extension of AGOA beyond 2015 spells doom for SSA cotton, textile and apparel sectors. It is prudent therefore to avert such a 14

19 catastrophe by addressing what needs to be done for SSA textile and apparel industry to attain a level playing field and benchmark its competitiveness to that of its Asian LDC counterparts whose efficiency comes along with better competitive prices. Since each of the participating SSA signed onto the AGOA agreement individually, ACTIF has found it prudent to consolidate the voice of the SSA textile and apparel producers to lobby the US Congress to: 1. Extend the period of AGOA and AGOA IV beyond 2015 to promote SSA cotton sector as originally intended; 2. Extend the period of the third country fabric provision; 3. Defer/postpone the introduction of DFQF status to Asian LDCs as it would undermine the purpose of AGOA and AGOA IV. 4. Prove that failure to guarantee (1-3 above) shall: Negate the intention of AGOA to alleviate poverty via Trade not Aid. Inadvertently remove the motivation to build an African Fibre, textile and apparel value chain. Not only discourage new investments, but reverse the development of apparel manufacturing capacity of SSA that has resulted from AGOA. Create unfair competition if DFQF status is extended to Asian LDCs. 1.2 Objectives As stated in ACTIF s mandate, the textile and garment performance review across SSA, in particular after the expiry of the MFA in 2005, is expected to collate success stories and challenges with regard to local conditions, markets, policies in place that yield or inhibit specific innovations of the cotton and textile industry. Consequently, ACTIF has consolidated and built consensus on the position of the African cotton, textile and apparel sectors to facilitate better negotiations at the national, regional and international trade and development forums; identify actions to be dedicated to the specific concerns of the industry; and to promote improved competitiveness in both the regional and global market place. Towards this end, ACTIF in championing the sector s interests, will also benchmark the operations of the industries in the continent with contemporary competitions at the market place, with specific reference to the Asian countries, in order to address any gaps where feasible or request for preferential treatment in accordance with WTO provisions. For a start ACTIF is targeting the AGOA initiative in the American market as part of its wider initiative to revamp the cotton and textile industry. This has been demonstrated through: a. Aggregated analysis of the performance of AGOA in the African Countries in relation to the selected Asian LDC countries b. The socio economic impact on the Textile and Apparel industry during the period of and and (Africa vs. Asian LDC s) c. The impact of direct and indirect incentives offered by the Governments to the Textile and Apparel sector (Africa vs. Asia) 15

20 d. The projected impact if AGOA is extended on short term basis, i.e. under 5 Yrs. (Africa vs. Asian LDC s e. Projected impact if AGOA is not extended (Africa vs. Asian LDC s) 1.3 Methodology The comparative analysis of the competitiveness of the cotton and textile sectors of the SSA countries is anchored on impact of AGOA post MFA expiry in 2005 against that of the Asian LDC countries during the same period for the same sectors. The analysis will also draw lessons on the performance of the textile and apparel sector during the period The key indicators of measure for highlighting peculiarities of SSA challenges requiring urgent attention in order to continue participating in global textile trade include export performance, investment, production capacities, competitiveness, government incentives and socioeconomic impact. These indicators are benchmarked to the more competitive Asian LDC counterparts with a view to generating proposals to sustain SSA cotton and textile industry into the future. The analysis will be dedicated on projected impact of AGOA on the SSA countries taking into account the competition from Asian LDC countries, if extension is short term (less than 5 years) or if there is no extension. On the basis of the analysis of the likely impact of AGOA post 2015, the SSA countries shall formulate a position to lobby the American government with a view to maintaining the preferential AGOA market access to the exclusion of other more efficient LDC countries. The indicators of measure shall be generated as presented here below: Export Performance Within the context of export performance defined as the relative success or failure of the efforts of a firm or nation to sell domestically-produced goods and services in other nations; the SSA AGOA textile and textile trade performance shall be monitored prior and post MFA period to crystallize options to sustain SSA participation in cotton and textile trade, in comparison with Asian LDC countries. In this regard, the indicators of measure shall incorporate textile and apparel export values, market outlets. The strength of SSA export performance shall also take into account, the capacity of SSA to take advantage of the expansion of the duty- free quota - free market access promised under AGOA standing at approximately 9,000 product tariff lines, thus diversifying export opportunities to include additional items such as apparel and footwear, wine, certain motor vehicle components, a variety of agricultural products, chemicals, steel and others to the existing GSP products. Investments Trends With assured preferential market access under AGOA, and assuming competitive production and related business support services, better returns are expected in doing business with Africa. The level and trends of both local and private sector investments in response to opportunities created through AGOA will be monitored through number of firms setting up business in SSA immediately after AGOA and post MFA period in

21 Production capacities Production in the form of processes and methods employed in the transformation of inputs (tangible/intangible) into goods and services shall in the context of textile and apparel trade be measured through level of cotton production, extent of integrated industries, inputs and skills availability and ownership of assets of production. Competitiveness Competitiveness being the ability of firms/nations to offer products and services that meet world market quality standards at prices that are competitive and provide adequate returns on the resources employed shall be evaluated through such indicators of pricing of labour, utilities, trade logistics in form of infrastructure (road) density and business environment among others for both the Asian LDCs and SSA countries. Government incentive schemes The government incentives in for of policies and business support measures to attract private sector investments shall be compared for the SSA and Asian LDC countries. These will be measured through fiscal policies, administrative measures, investment Guarantees and protection, level of integration, quality of infrastructure and related support services. Socioeconomic impact The proxy on socioeconomic impact of AGOA shall be based on employment created, export revenues. However, where information is available, regional and global integration, upstream and downstream support sectors shall also be referred to. The SSA countries to form the basis of textile and apparel competitiveness study include Kenya, Ethiopia, Mauritius, Lesotho, Swaziland and S. Africa. The Asian LDC countries for benchmarking the SSA comparative competiveness and to guide in determining the future direction of AGOA after 2015 are Bangladesh, Cambodia and Vietnam. 17

22 Exports in US$ Million 2.0 COMPARATIVE ANALYSIS OF THE PERFORMANCE OF AGOA IN THE AFRICAN COUNTRIES AND SELECTED ASIAN LDC COUNTRIES The comparative analysis to demonstrate that SSA cannot compete with Asian LDCs on equal basis when AGOA is not extended beyond 2015 is validated with patterns and trends of export performance, investment production, competitiveness, socio-economic impact during the periods , and future outlook beyond Export Performance Trade performance As reported by Bedi (July, 2010), the 10th AGOA Anniversary rightfully acknowledged AGOA s transformative effect on the African economies, in which in a number of cases, it opened new frontiers of engagement with the USA. From the trade statistics ( UN COMTRADE and Country Textile and AGOA Impact Reports, 2009 and 2010) presented in Table 2.1, and Figure 2.0, apart from a few SSA countries (Ethiopia and S, Africa) endowed with oil and minerals and diversified export product range, all the SSA countries experienced negative export growth rates immediately after the MFA expiry in This goes to show that textile and apparel sector is a dominant trade sector under AGOA. On the other hand, the Asian LDC trade with USA blossomed more with expiry of the MFA, confirming the SSA country cry that they are being displaced by Asian LDC countries. This was particularly the case for Vietnam and Bangladesh. Except for 2009, Vietnam registered positive growth in all the other years. Cambodia registered positive growth rates from 2000 to While Bangladesh experienced negative growth rates up to 2003, the reverse was the case with expiry of MFA in Figure 2.0: Total Textile and Apparel Exports to USA by selected SSA Countries, ,000 Total Textiles and Apparel Exports to USA by Selected SSA Countries ,500 1, Year Lesotho Madagascar Kenya Mauritius Swaziland Ethiopia 18

23 Table 2.1: Exports to US under AGOA / GSP provisions for selected Africa AGOA eligible countries Compared with Trade of USA- Asian LDC countries, (US $ 000) Country Lesotho 129, , , , , , , , ,046 Madagascar 128, , , , , , , , , ,000 Kenya 30,000 70, , , , , , , , ,081 Mauritius 427, , ,000 1,728, , , , , , ,000 Swaziland 79,000 13,000 64, , ,000 56,000 49, , , ,000 Ethiopia 17,583 19,554 16,666 22,721 35,623 43,885 50, , , ,900 S. Africa 2,409,237 3,651,452 2,439,154 3,844,168 4,689,548 4,893,176 6,058,239 7,528,705 7,987,446 4,860,000 Annual Growth Rates, % Lesotho Madagascar Kenya Mauritius Swaziland Ethiopia S. Africa Vietnam 1,892,000 1,962,000 2,792,000 3,939,000 5,027,000 5,927,000 7,850,000 10,111,000 11,903,000 9,108,000 Cambodia 750, , ,813 1,128,563 1,311, ,000 1,906,000 1,996,000 1,970,288.. Bangladesh 2,197,168 2,196,555 2,058,805 1,883,191 2,169,308 2,662,019 3,123,244 3,374,525.. Annual Growth Rates, % Vietnam Cambodia Bangladesh Source: COMTRADE; Country Reports, 2009 &

24 2.1.2 Textile and Apparel Export performance for SSA under AGOA Compared with USA-Asian LDCs Textile Apparel trade post MFA Period The trade records of US Dept of Commerce, Office of Textiles and Apparel (Table 2.2) confirms that SSA textile and apparel exports more than doubled between 2000 and 2004 (134.89%) unlike close to 50% decline experienced between 2004 and 2009 concurrent with MFA expiry (Table 2.3 and Figures 2.1 and 2.2). Country specific textile performances into the USA market (Table 2.3) indicates that the Asian LDC countries maintained positive textile trade growth rates during the period The SSA textile trade with USA was negative with expiry of the MFA. However, the S. African and Ethiopian textile trade patterns were different in part due to lower trade with USA. AGOA for the SSA countries is the single initiative credited with revival of the textile and apparel industry and to some extent the revival of cotton growing. In addition AGOA opened up the US market for trade in textiles and extractive industries. Lesotho and in part Swaziland textile industry in whole is based on AGOA, since none existed prior to AGOA. The Kenyan textile industry equally was revived because of AGOA. On the other hand Ethiopia, Mauritius and S. Africa had well-functioning integrated cotton-textile industries prior to AGOA, but AGOA created the additional impetus to expand and trade outside the traditional domestic and European markets. Table 2.2: Comparison of USA Textile Imports from SSA and selected Asian Countries, , (USD millions) 2000 Imports 2004 Imports 2009 Imports % change % change SSA % Total-Asian LDC Bangladesh % Cambodia Vietnam Source: US Dept of Commerce, Office of Textiles and Apparel The Asian LDCs exports maintained positive growth of % and 72.63% respectively. During the period , the more competitive selected Asian LDC countries exported as much as four times total textile exports of the SSA countries compared to more than eleven times between , the period after MFA expiry. Even prior to expiry of MFA in 2005, the selected Asian LDC countries experienced healthy textile export performance into the USA market. The Asian LDC countries are persistently displacing the SSA African countries in textile exports into the US market because of their competitive advantage on account of lower production costs, higher productivity, better incentives and associated efficiencies. AGOA preferences for the SSA countries were eroded by the expiry of MFA. 20