India, China seen as primary beneficiaries of new trade rules
NAIROBI, Kenya (AP)--New international trade rules have hit the African textile and clothing industry hard, again dashing hopes of bringing prosperity to the world's poorest continent.
Following the end of the World Trade Organization's textile and clothing quota system on Dec. 31, investors have begun dismantling African factories. African officials say the investors, who set up textile companies in special export business zones, are now in search of the next country of opportunity.
With the restrictions lifted, big textile and clothing producers such as China and India are viewed as the key beneficiaries. In spite of a U.S. quota law that helps them in the world's largest textile market, the African countries can't compete against Asian countries because of their higher production costs.
"Every country fears China because of what they can produce," said Angela Wauye of aid group Actionaid International's Kenya office.
Negotiators have pledged to give African countries a better chance under new WTO rules currently being drafted. But experts say most of the companies will have moved to India or China by then, leaving Africa to look for another way out of poverty.
The quota system was first introduced to give poor countries a chance to compete in the textile industry, long seen as an essential first step in industrial development. But the gains made by poor African countries while they had a guaranteed market share will be quickly wiped out by the end of quotas.
In the southern African country of Lesotho, 22,276 people lost their textile factory jobs between June 2004 and January because it can't compete in a quota-free market, said Peete Molapo, chief executive officer of the Lesotho Development Corp.
Before the United States African Growth and Opportunity Act, or AGOA, took effect in 2000, Lesotho did not export clothes or textiles at all, according to the WTO. The law gives 23 sub-Saharan African countries duty- and quota-free access to the U.S., the world's largest textile market. In 2003 Lesotho exported textiles worth $419 million to the U.S., according to the WTO's most recent figures.
Africa's total textiles and clothing exports were worth $2.3 billion in 2003, according to the WTO. That is less than one percent of the $321.9 billion world textiles and clothing exports but a huge boon for the continent, spurring the growth of a manufacturing sector and creating much- needed jobs.
There are currently 37 sub-Saharan countries eligible for special conditions to export a wide range of goods and products to the United States under the African Growth and Opportunity Act. Out of these, 23 countries are eligible for duty and quota-free access to the U.S. textile market.
In Kenya, this special treatment has seen employment in export zones increase almost six-fold to 35,935 people in 2003, from 6,620 in 2000, according to most recent figures from the Export Processing Zones Authority. In 2002, 81 percent of the exports from the zones were textiles and clothing. Investment more than doubled to $201.3 million in 2003, from $78.2 million in 2000, the authority said.
Most of the Kenyan textile companies did not take orders beyond Easter because they closely follow trade developments and knew the quota system was ending, Assistant Trade Minister Zaddock Syongoh told The Associated Press. Many are likely to close and leave 20,000 people without jobs.
"Everything can be folded within a matter of hours," Syongoh said, referring to their machinery and equipment.
To compete in a quota-free world textile market, African countries will need to reduce production costs such as electricity and transportation, said Tejal Shah of Midco Textiles Ltd., a 42-year-old Kenyan company. Shah said electricity makes up 40 percent of Midco's production costs, compared to Indian textile producers for whom power only makes up 10 percent of their costs. Kenya's sole power company has suffered from mismanagement and corruption, as well as poorly-drawn contracts with independent power suppliers that keep electricity prices high.
"In the early 1990s to mid-1990s we used to export to Europe and stopped. Cost-wise we cannot compete with Eastern Europe and Southeast Asia," Shah said. "Quality of the item is still very good. It's still a matter of costs."