TRALAC - Trade Law Centre

Southern Africa: Textile Industry Undone by Globalisation

Wednesday, 06 July 2005

Source: UN Integrated Regional Information Network (IRI

The textile and clothing manufacturing industry is not a sustainable option for Southern Africa in the long term, according to a UN economist. The sector - one of Southern Africa's few export industries - is struggling to compete in a quota-free global market.

Manufacturers have been hard-hit by the termination of the Multi-Fibre Agreement (MFA), which came to an end in January this year. The MFA was introduced 30 years ago to protect the textile industries of developed countries by imposing quotas on high-volume producers such as China, Korea and India.

Producing clothing, which is "easy to set up [and] has a lot of short-term benefits, [like] employment and cash flow", is often seen as the first rung of the industrialisation ladder, noted Osten Chulu, an economist with the UN Development Programme in Lesotho.

Better market access for African manufacturers is one of the key issues being discussed at the G8 summit being held in Gleneagles, Scotland.

However, the southern Africa sector could never compete with China, which boasts not only low production costs, but also an artificially weakened currency, Chulu pointed out.

More than 10 clothing factories have shut down operations in Lesotho since the beginning of this year; at least 10,000 workers - about 25 percent of Lesotho's clothing workforce - lost their jobs. "If each worker had four dependants, at least 40,000 lives have already been directly affected by the closure of the factories," he commented.

Countries like Lesotho and Swaziland, which had preferential access to the US market through the African Growth and Opportunity Act (AGOA), have been affected by the expiry of the global quota system, which kept competition from low-cost producers at bay.

South Africa's clothing exports to the US under AGOA "have dropped quite substantially" from US $26 million in the first quarter of last year to $12 million for the corresponding period this year, noted Eckart Naumann, an economist and associate of the nonprofit Trade Law Centre for Southern Africa (tralac).

The largely Asian-owned clothing industry is the largest employer in Lesotho, providing jobs to 55,000 people.

Chulu suggested Southern Africa diversify and work with raw materials produced locally, and consider the food-processing sector for manufacturing "maize-based food products or animal feed, fruits, vegetables and fish".

At the moment a small proportion of the profits made by the Asian-owned clothing sector, which also enjoys tax benefits, filtered into the development of countries like Lesotho, observed Chulu. A homegrown industry could "also, instead of looking at the European or the US markets, consider the region as a market".

In the meantime, the African clothing sector, already reeling from the impact of the end of the MFA, was simultaneously being flooded by garments "mostly from China", Naumann pointed out.

"This is because the European Union (EU) and the US have once again imposed restrictions on China to restrain its textile exports; as a result, goods en-route to these markets are being diverted to Africa," he said.

At the end of the global quota system, "Chinese imports to the EU and US had surged by up to 1,500 percent a year, which caused a big uproar. Europe took the lead and came to agreement with China to limit the growth of imports to 15 percent a year", Naumann observed.

The US has reportedly also imposed quotas to limit the growth of Chinese imports to 7.5 percent a year. World Trade Organisation regulations allow countries to impose import quotas when their domestic industries are threatened.

South Africa is the only country in the region that has sought to protect its domestic industry by putting legislative tools in place to control textile imports, but the controls only came into affect in May.

In the first quarter of this year, Chinese goods accounted for 81 percent of South Africa's total imports of clothing, as against 75 percent for 2004, Naumann noted.

Besides domestic protection, Southern Africa is also seeking better market access.

A relaxation of the EU's rules of origin, which currently require that the fabric used by clothing manufacturers must originate locally, was "critical to the development if not survival of the clothing sector in the region", said Naumann. At the moment the bulk of the fabric is being sourced from Asia, especially for exports under AGOA.

To provide better market access, developed countries should also reduce import tariffs and subsidies to its domestic manufacturing sector, he recommended.

The UK-based development agency, Oxfam, has suggested that the developed world provide urgent technical and financial assistance to the affected countries, whose governments in turn should provide retraining and help retrenched workers seek alternative employment.