nipping african clothing in a post-mfa bud? · the ‘asian drivers & africa’ project at ......

Nipping African Clothing in a Post-MFA Bud?

Nicolas Pinaud,

OECD Development Centre

经合组织发展中心

Standard Chartered & the OECD Development Centre

AFRICA AND CHINA: ECONOMIC AND BUSINESS PERSPECTIVES

Shanghai

16 May 2007

The ‘Asian Drivers & Africa’ Project at the OECD Development Centre

– Supported by the Agence Française de Développement and the Swiss Agency for Cooperation and Development (SDC)

– March 2006: OECD Experts’ Meeting in Paris

– June 2006: Policy Study, ‘The Rise of China & India: What’s in it For Africa?’

– Forthcoming: Sectoral (clothing / footwear) & Country Case-Studies (Senegal, Angola, Ethiopia, Kenya)

☞ More at: www.oecd.org/dev/publications/chindaf

http://www.oecd.org/dev/publications/chindaf

Relevance of Clothing to SS. African Countries

• Intensive in low-cost unskilled labour☞ Job opportunities (formal & informal sectors)

Poverty alleviation

• Traditionally spearheading industrialisation

☞ Economic diversification

SS. Africa’s Positioning in the Global Clothing Industry

• Strengths... • Low wage costs

Average hourly wage ($ cents)

Madagascar 0.33

Kenya 0.38

Indonesia 0.27

India 0.38

Bangladesh 0.39

Pakistan 0.41

Sri Lanka 0.49

Egypt 0.77

China 0.88

Philippines 0.91

Nicaragua 0.91

Colombia 0.98

Source: ITC (2004)


• Strengths...• Low wage costs

• Raw material: world class cotton producers (Mali, Burkina Faso, Benin)


• Strengths... • Low wage costs

• Raw material: World class cotton producers

• ... & Weaknesses• Dominated by small and very small producers: low

productivity, obsolete & limited machinery equipment

• High factor costs & weak logistical infrastructures

• Poor capacity re: product development, packaging, quality controls & financing

• No access to domestic sources of high-quality / competitive yarns & fabrics


The performance of SSA, China and India clothing firms on operational factors

(1=very poor performance; 5=excellent performance)

0

1

2

3

4

5Manufacturing costs

Quality

Technology level

Product developmentcapability

Delivery leadtime/flexibility

Labour relations

Product range

China India SSA

Source: Company interviews, in Kaplinsky & Morris (2006) for OECD Asian Drivers Project


• Lower-end of the product range • Little value-added

• Long production runs and limited styling changes

• Price competitiveness is key, high competitive pressure from Asian producers, low margins


• Lower-end of the product range

• Limited ability to meet global buyers’demands:

• Full package services

• Large volumes

• Just-in-time delivery & store-ready products


• Lower-end of the product range

• Limited ability to meet global buyers’demands

• Domestic and regional markets mostly

Africa’s Positioning in the Global Clothing Industry

☞ Sub-Saharan Africa:

A Minor Player in World Clothing Trade

European Union, 32.2

Turkey, 4.6

Mexico, 4.4

USA, 3.4

Rep. of Korea, 2.2

Bangladesh, 2.2

Indonesia, 2.2Tunisia, 1.5

Viet Nam, 1.5Morocco, 1.4

Ot hers, 16.6

S ub- S a ha ra n A f ric a , 1.0

C hina *, 2 3 .3

India , 3 .4

European Union

China*

Turkey

Mexico

India

USA

Rep. of Korea

Bangladesh

Indonesia

Tunisia

Viet Nam

Morocco

Sub-Saharan Af r ica

Ot hers

% Share in World Exports of Clothing (2002)

Source: OECD (2006) based on UN Comtrade

From AGOA to MFA Dismantlement: African Clothing, a Still Born Industry?

The African Growth and Opportunity Act...

• US Trade Act of 2000

• Duty- & quota-free access for African clothing to the US market

• Accommodative rules of origin: ‘third-country’ fabrics & yarns


The African Growth and Opportunity Act...

... combined with the Multi-Fibre Agreement (1974) Quotas on exports of clothing from Asian producers

to the US & EU markets


... & high tariffs on clothing productsTextile and Clothing, Simple

average Tariffs

Manufactures Textiles Clothing

OECD countries 6.2 9.4 16.1

Australia 5.4 9.9 20.7

Canada 4.9 10.7 18.4

European Union 4.4 7.9 11.4

Japan 2.9 6.5 11

New Zealand 3.1 2.4 13.7

United States 4 9.1 11.4

Source: OECD (2004)


i) To give an impetus to market-seeking FDI in the clothing sectors of African countries:

• Circumventing quotas

• Preferential access

☞ Mostly FDI by Asian quota-constrained investors


Market-seeking FDI in the clothing sectors of African countries:

Performance of Clothing Export Processing Zones in Kenya

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005

Number of Enterprises Employment (Number, '000) Exports (US$ m) Investment (US$ m)

Source: Kamau (forthcoming) for OECD Asian Drivers Project

24 apparel manufacturing EPZ firms: origin

-India: 8

-China: 6

-Sri Lanka: 3

-Bangladesh: 2


ii) And to boost African exports of clothing to the US

AGOA clothing exports to US, 2001 – 2004 ($m)

0

50

100

150

200

250

300

350

400

450

500

Lesotho Madagascar Kenya Mauritius Swaziland South Africa

$m

2001 2002 2003 2004

Source: Kaplinsky & Morris (2006) for OECD Asian Drivers Project


• The MFA dismantlement (January 2005) & a general erosion of trade preferences

☞ Increased competitive pressure in• Lower-end products

• Markets protected by MFA (US & the EU)

☞ Vulnerability of SS. African clothing exports


☞ Vulnerability of SS. African clothing exports

0

10

20

30

40

50

60

70

80

90

100

USA and European Union European Union United States

Exports to EU & US as % of total African clothing exports

Source: OECD (2006)


• The MFA dismantlement (January 2005) & a general erosion of trade preferences

☞ A ‘re-integration’ of the global textile /clothing value-chain (OECD, 2004)

. Impact on clothing-related FDI worldwide

. Expected winners (China, India) & losers (Second-tier producers, incl. Africa)


• A risk compounded by large imports of Asian clothing into domestic African markets

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Algeria

Benin

Burkina

Faso

Burund

iCam

eroon

Cape V

erde

Ivory

Coast

Egypt

Gabon

Kenya

Madag

asca

rMala

wi

MaliMau

ritania

Morocc

oMoz

ambiq

ueNam

ibia

Niger

Seneg

alSou

th Afric

a

Sudan

Togo

Ugand

a

United

Rep

. of T

anza

nia

Zambia

China's share in imports of clothing (2000), % China's share in imports of clothing (2004), %

Source: OECD estimates based on UN Comtrade


• A risk compounded by large imports of Asian clothing into domestic African markets

-500 0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000

Algeria

Burkina Faso

Cameroon

Ivory Coast

Gabon

Madagascar

Mali

Morocco

Namibia

Senegal

Sudan

Uganda

Zambia

Value of clothing imports from China, % change(2000-2004) Value of clothing imports - Total , % change(2000-2004)

Source: OECD estimates based on UN Comtrade

African Clothing Industry in a Post-MFA Context: Coping Strategies

• ‘Low road’ adjustment strategies: – Safeguard measures in SSA domestic markets (e.g. South

Africa)– Cost-cutting & price competitiveness

• ‘High road’ adjustment strategies: – Developing a competitive SS. African textile industry

(yarns & fabrics)– Invest to improve quality & design (e.g. footwear industry

in Ethiopia, forthcoming, OECD Asian Drivers project)

• Upholding trade preferences (e.g. making rules of origin more flexible)

African Clothing Industry in a Post-MFA Context: Prospects

• SS. African clothing exports more resilient than expected

• Buyers perceptions of SSA sourcing, a cause for optimism?

0.0

1.0

2.0

3.0

4.0

5.0

How important areAGOA tariff

preferences insourcing from SSA?

Are 3rd country fabricprovisions important in

your SSA sourcing?

How important is theexpiration of China

safeguards to futureSSA sourcing?

How important wassocial responsibility in

your decision tosource from SSA?

Buyer perceptions of the relative importance of AGOA preferences,

China safeguards and corporate social responsibility in the decision to source

from SSA (1=not important; 5= very important)

Source: Kaplinsky & Morris (2006) for OECD Asian Drivers Project

African Clothing Industry in a Post-MFA Context: Prospects

• SS. African clothing exports more resilient than expected

• Buyers perceptions of SSA sourcing, a cause for optimism?

• Preferential access to OECD markets & Fabric derogation critical

Thank you!

nipping african clothing in a post-mfa bud? · the ‘asian drivers & africa’ project at ......

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