TRALAC - Trade Law Centre

Swaziland Fails to Make Trade Preferences Count

Monday, 12 December 2005

Source: Business Day

Is the African Growth and Opportunity Act (AGOA) dead in the water? Many Taiwanese garment manufacturers in Swaziland believe it is.

On a research trip to Swaziland last week for the Brenthurst Foundation, I witnessed a fairly bleak picture emerging.

With all the hype about China's unfettered entry into the global textile trade and the attendant problems for other exporting countries, it seems other important considerations of competitiveness and sustainability need to be considered.

The strong rand was at the top of the list of problems the Taiwanese investors blame for reduced margins. When Swaziland was admitted to Agoa in 2001, SA's currency, to which Swaziland's lilangeni is pegged, was at its lowest ebb.

Many Taiwanese manufacturers decided to invest there because of the exchange rate of more than R13 to one dollar.

"Even with no other variables taken into consideration, our profits have almost halved on the currency issue alone over the past few years," one said.

Another problem is the trebling of labour costs since 2001 in Swaziland, which has a legislated minimum wage. Labour costs form up to 40% of total costs, delivering another painful blow to their global competitiveness.

The companies, which cost their expenses in dollars, reckon they are paying $200 a worker each month, at current exchange rates. Many Asian countries have no minimum wage, making costs much lower. In China, for example, the average labour cost is $40-$60, it is $45 in Cambodia and $25-$35 in Vietnam.

A third problem is the time it takes to get raw materials from Asia, which lengthens the turnaround time of final exports to about three months.

Swaziland, as a least developed country (unlike SA and Mauritius which are listed as "lesser developed countries" for Agoa purposes) is able to source materials from third countries until 2008.

One factory owner said absenteeism was often as high as 10% daily among his workforce of 3000 people. This was attributed partly to AIDS: Swaziland has one of the world's highest infection rates -- but also to a poor work ethic, among other things.

This affects productivity. In some factories surveyed productivity is about 70%, compared with more than 85% in Asia.

Manufacturers also complained about the slow bureaucratic responses by government officials, and the fact that the government was not prepared to help them counter declining margins by, for example, reducing power and water tariffs.

But the government argues that time is not on its side. It is on a steep learning curve as regards producing for export in a sector in which the country has little experience, and by the time it gets its policies right the preferences will have run out of steam.

It has also voiced concern about the lack of integration by foreign investors who import all their requirements and then export their products. The main benefit, not a small one, is that the Taiwanese have employed more than 30000 people.

But even this is declining as factories close up shop -- eight in 2005 alone -- due to insufficient profits. Several have relocated to Egypt, also an Agoa beneficiary country but with much lower labour costs.

Will the waters close over in Swaziland when Agoa preferences end in 2015? The Taiwanese say the party is not even likely to last that long. It is widely expected to be over in 2008 when countries are forced to buy their raw materials at four times the price from African countries.

This all raises the question about how good trade preferences have been for Africa and whether a lack of vertical integration makes them no more than a flash in the pan. Alarm bells should be ringing in other Agoa beneficiary countries, which need to look now at what they can do to make the benefits sustainable over the longer term.

It is crucial that governments start to look at where the blame for a lack of sustainability lies.

Is it in uncompetitive government policies or is the private sector to blame -- or both? Or could it be the mechanisms of Agoa itself, which was punted by former US president Bill Clinton as Africa's big hope?

As African negotiators head for the World Trade Organisation meetings in Hong Kong this week, hopefully issues of sustainability and competitiveness back home will be top of mind, not just the quest for market access.



“AGOA Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Swaziland’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.