Textile sector reaches breaking point
Mbongeni Mguni | Friday March 23, 2018 18:23
From 13 firms exporting under the AGOA provisions prior to the global recession, the number dropped to just one, Carapparel Botswana, which last year gave up and relocated to Lesotho.
Lesotho is a top textile exporter under AGOA, shipping off $290.4 million to the US last year. Local exports, by comparison, were measured at $993,000, a 75% drop from 2016 and the continuation of a slide over the years from a peak of $30 million in 2005 (P289.2 million).
In the last decade, textile exports, including AGOA, have tumbled from P1.8 billion in 2008 to P163 million for the year up to November 2017, according to Bank of Botswana data.
The tumble was halted temporarily between 2009 and 2011 when the government, in response to the global recession, granted the textile industry a two-year P38 million ‘special support programme’ designed specifically to support payment of wages. The industry’s perennial troubles stem from the phasing out of the Financial Assistance Policy benefits in 2000, which used to provide tax holidays, labour grant incentives and training schemes.
Other challenges have included high production costs associated partly with the cost of utilities and labour, stiff competition in the local market from external producers, poor competitiveness due to distance to market, limited production capacity, inconsistent quality of products, as well as an inadequate pool of skilled technical manpower.
Once a leading employer mainly of young unskilled female citizens, the textile sector began shedding jobs in the years after 2008, with numbers dropping from 10,000 in 2010, to the current estimate of 3,000.
While exports are generally used to gauge the local sector’s health, players in the industry this week said the domestic situation was in dire straits as well, with most factories battling to stay afloat.
The trade ministry in conjunction with USAID launched the National AGOA Response Strategy last year, to shore up flagging exports, while an incentives proposal and broader sector strategy are reportedly due before Cabinet.
The AGOA strategy’s objectives include “identifying policy responses in targeted sectors to capacitate current and potential exporters in Botswana,” and “attracting investment into identified sectors that can benefit from international trade”.
“The challenge is that implementation is not there,” Banusi Mbaakanyi, Botswana Textile and Clothing Association president told BusinessWeek on Tuesday.
“There is a strategy and the US helped with that, but we are asking why it is not being driven forward. Where are we now with it?
“We had thought there should be funding in place to make that strategy effective.
“Jobs could be created like yesterday and people are ready to drive this sector.”
Mbaakanyi said at least 10 companies were lined up and capable of exporting to South Africa, piggybacking on agreements the trade ministry reached with leading South Africa clothing retailers recently. “With that regional export, those companies would gain confidence and be sharpened to look to AGOA,” Mbaakanyi said.
The financial component of the incentives proposal ranges from tax write-offs against training costs, concessional CEDA loans, VAT subsidies, duty-free intermediate capital goods and raw material imports, subsidies on utilities and concessional rents for factory shells. “Government should be looking at sectors that are key to economic diversification, existing sectors,” Mbaakanyi said.
“The special support programme was there, but we don’t want a labour subsidy. What we should be focusing on is productive incentives like machinery and skills development. “We need incentives that look at the exact needs of the industry, from skills levels to improving machinery and technology.”
While trade ministry officials were unreachable for comment, officials from there and the Botswana Investment and Trade Centre have been conducting countrywide workshops aimed at spreading awareness on the AGOA provisions.
The National AGOA Strategy is seeking greater use of the provisions not just for textiles, but for six other eligible export sectors identified by government. These include handicrafts, horticulture, jewellery, leather products, meat products and indigenous products.
US Embassy public affairs officer, Ineke Stoneham told BusinessWeek that while AGOA was a law, and did not create trade, it offered the most liberal preferential trade access to the US market for any country or region, which does not have a free trade deal with the US. “The US wants to see responsible development and transparent, free-market practices and we are eager to reduce barriers to trade and investment with our Batswana partners,” she said. “The US mission will continue to partner with the government of Botswana to encourage full utilisation of AGOA.”