Lying within the Indian Ocean, due east of Mozambique and due west of Mauritius, the tropical island of Madagascar is currently one of the most interesting places in the world as far as the global apparel industry is concerned. Niki Tait paid a visit to the country's rapidly growing garment export industry.

Apparel exports from Madagascar have been duty and quota free to Europe for many years under the Lome/Cotonou Agreements - albeit with certain fabric of origin restrictions.

But now, because of the low average income of the population, the country has been given 'Less Developed Nation' status under the Africa Growth and Opportunities Act (AGOA). This means that until late 2004, fabrics and yarns from anywhere in the world can be used, and the resulting made-up garments still exported duty and quota free to the USA.
 
Along with its political stability and low level of HIV/Aids infection, this makes Madagascan apparel exports a very interesting proposition for both buyers and investors - and gives the country the fastest growing clothing industry in sub-Saharan Africa.

History of the industry
Following its independence from the French in 1960 the nation's economy went into decline, rendering it one of the world's poorest nations. However by the late eighties the country began to relax some of its regimes, and in 1990 the export processing zone (EPZ) was set up to offer reasonable investment incentives.

The origins of the Madagascan apparel export industry are intertwined with those of the Mauritian industry, which by 1986 had grown to become the largest single employer on the island. By 1990 apparel accounted for 53 per cent of the country's total export value.

However Mauritius is a small island and, faced with a low unemployment rate and competition for jobs from the growing tourist industry, Mauritian manufacturers were forced to look elsewhere for labour.

This they did in two ways. One was by importing labour - a current practice, with up to 30 per cent of a company's workers can coming under contract from countries such as China and India - or by moving manufacturing offshore.

With the economy of Madagascar in major decline, this neighbouring country with its ease of access, abundant low cost workforce and French as a common language began to emerge as an ideal solution.

Floreal Knitwear was the first to set up a factory in 1988. Part of the CIEL group, it is currently the largest apparel employer in Madagascar, with a workforce of 12,100. The French also began to reinvest, and with the introduction of the EPZ the industry began to grow.

There are few available statistics, but the temporary change of government from 1992-96 saw a slowdown in investment. Since the return of the President, however, investment has returned. This second wave of expenditure has come both from Mauritian and Asian apparel producers (principally from Hong Kong and China, Singapore and Malaysia), and with the AGOA has been fuelled by a third wave of investors from the Middle East, Dubai, Saudi Arabia, UAE, and Pakistan. They have established many large factories employing well over a thousand people in each on a CMT basis. The latest wave of potential investors comes from Sri Lanka and India.

The Hong Kong based Crystal Group has been operating in Madagascar for a year to take advantage of AGOA. It already employs 2,000 people in its sweater plant and 8,000 making cut and sew wovens and knits, and is set to be Madagascar's largest employer by the end of 2002.

Current situation
There are now around 140 privately owned EPZ apparel producers, employing between 79,000 and 100,000 people. Estimated investment in 2002 comes from the Middle East (25 per cent), Mauritius (30 per cent), Far East - Singapore, China and Hong Kong - (30 per cent), French (10 per cent) and local investment (five per cent).

Only 5-6 per cent of the country's clothing companies make for the domestic market since this is dominated by imported second hand clothing.

The facility to use globally sourced fabric and yarn with duty free access to the US is set to finish at the end of 2004. Due to the limited availability of locally produced materials, all the manufacturers who have invested in Madagascar are hoping for an extension to this agreement. Indeed it appears that the growth of the industry is currently slowing pending this decision.

Another threat to long-term investment is the global elimination of quotas - particularly as abundant low cost labour is equally available in countries such as China.

However, it is also evident from the amount of land clearance and building work that some investment and expansion will continue.

The industry is centred within three main EPZ industrial areas in Antananarivo (Tana), the capital, but is also becoming established in Antsirabe, home of Cotona, the only sizable fabric producer of note, and to a much lesser extent Majunga (Mahajanga), where the largest jeans manufacturer is located.

Cost comparisons
The minimum wage of 126,000 Malagasy Francs equates to US$21 (£12) per month for a 40-hour week, with average wages inclusive of overtime and incentive payments coming to £25/US$40 per month. However, productivity can be 25 per cent below that of Mauritius - even though Mauritians tend to target their own factory lines 25 per cent below those of their Chinese or Indian ex-pat workers. The Crystal Group explained that although wages are about 50 per cent lower in Madagascar than China, the efficiency is only 30 per cent of the Chinese.

The higher cost of services and overheads, such as transport, electricity, telephones and rent also have to be taken into account, as well as the cost of using ex-pat supervisors, middle managers and technical staff. Capital borrowing is also very expensive - at 17-25 per cent. 

There are also high administrative and 'hidden' costs associated with importing and exporting goods and ensuring the correct paperwork is available when needed. This is obviously a sensitive question for most companies. One said it had to pay approximately US$5000 for its 'free' AGOA export licence. Another explained that its goods had been impounded as the "documents were not in order", the fine amounting to 400 per cent of the value of the goods. The fine was not paid and the garments never released.

Companies indicated that 'hidden costs' could equate to 10-20 per cent of the CMT price of a garment. Compared to Mauritius, total costs are just 5-8 per cent lower depending on product type. Although "to corrupt or be corrupted against" is contrary to English and American law, and that of many other countries, it is quite clear that a company has to deal with it or leave the country. Membership of the GEFP, a private organisation made up of over 92 per cent of EPZ companies and their suppliers, helps provide mutual support and help against "administrative difficulties."

The perception among local people is that foreign-owned companies tend to exploit their workforces. However, an independent study carried out in 1998 apparently concluded EPZ companies treated staff better than locally owned companies.

It also found no evidence of child labour within the EPZ companies, the opinion being that there were enough low cost workers, so why jeopardise the business by employing anyone under the age of eighteen? Most handwork and embroidery is carried out in factories rather than by home workers - with companies saying they can keep far greater control of garment quality and cleanliness this way. Akanjo, for example, the French-owned producer of hand embroidered children's and ladies' wear, employs 700 hand embroiderers internally.

Products and customers
Although still exempt from the AGOA agreement, fully-fashioned knitwear is one of the main items produced. The lack of statistics makes it difficult to categorise exported products, although estimates suggest 40-60 per cent of output is made up of sweaters. The remaining production is given to casual chino style trousers and some jeans, woven shirts and T-shirts.

A little over half of all apparel exports go to the USA, though business with Europe is still on the increase. France accounts for over half of the European market, with Sweden and the UK also major buyers.

The Malagasy are well known for their artisan hand skills and hand embroidery, and hand embroidered and hand smocked children's wear is exported to French companies such as Baby Dior. Other hand-crafted products are also made: Tanacrex, for example, exports high quality mother of pearl buttons, toggles and other fasteners.
 
Princess Tam Tam is the first Malagasy brand to be exported, with its lingerie selling in France for the last ten years. Originating from the Mauritius-based Novelle Lingerie company, all products are now made in Madagascar.

The main purchaser of apparel from Madagascar is the Gap group, accounting for an estimated 27 per cent of all production. Other customers include Liz Claiborne, Costo, Mast industries, Banana Republic, Eddie Bauer (US), George Clothing, Tesco, Debenhams, Jumper, Principles, Next, Burtons (UK), Celio, Decathlon, Monoprix, Carrefour, Christian Dior, Chanel, Printemps, Cyrillus, Tartine and Chocolat (France), Hema (Holland), Adler (Germany), and H&M (Sweden).

Production
The technology is typical of newly established, multi-national factories in a low cost country. More than 90 per cent of the knit to shape products are hand machine knitted, though automatic machines are also used. The Crystal Group, for example recently installed 50 $33,000 SES122S Shima Seiki machines, and to ensure continuity of output has also invested in a major UPS (uninterrupted power supply) and generator.

Lectra and Gerber systems are prevalent for grading and marker making, though spreading and cutting are mainly manual. Tajima is the main multi-head computerised embroidery machine supplier, although Barudan also has a presence. Sewing machines tend to utilise basic electronics, with Juki and Brother the most widespread. Automatic equipment is used where quality is paramount, such as pocket setting.

Although most companies use a progressive bundle manufacturing system, some have invested in major computerised UPS (unit production systems), particularly Eton.

Infrastructure
As the industry expands, the infrastructure is expanding too. Trim and accessory suppliers, mainly from Mauritius, are setting up and Coats Threads has just opened a computerised plant to provide a quick response dye to order service.

Fabric supply is very limited, with Cotona the only major woven fabric maker (100 per cent cotton trouser and shirting fabric). Despite major restructuring and reinvestment, it supplies just 30 per cent of local needs (14 million metres by 2005). In terms of jersey fabrics, SAMAF and Festival are the two local producers, though with 6-7 weeks' lead time they offer few advantages over fabric from India, Pakistan and the Far East where better quality comes at lower cost.

The five main shipping companies each specialise in specific products and industries. The Rogers Group focuses on the apparel and textile industry and ships 85 per cent of all finished products. Rogers works in partnership with logistics companies in the customer's countries. The largest UK specialist for importing clothing from Madagascar is the Elite Group, which can provide a full logistics service including importation, garment reprocessing, store ready packaging and quality control.

Forwarders have to work within the limitations of the infrastructure. For example, even though manufacturers can respond quickly to new orders, cargo space is at a premium. There are no direct cargo flights to the USA and only two a week to Europe. Facilities at the port are poor, and this, combined with an inadequate road network, customs inefficiencies and administration complications mean an additional two weeks have to be added to the lead time.

This is a major deterrent to potential buyers and has caused some customers to downsize their buying plans.

Post September 11
July and August 2001 were record months for US apparel exports. Although September and October are traditionally slow periods for the Madagascan industry, events in New York on September 11 led to delayed rather than cancelled orders. By November 2001 the situation was already righting itself.

The effect of US military action in Afghanistan resulted in cancelled orders with apparel producers in Pakistan and other Muslim-based Middle East countries. Much of this empty production capacity was then bought by the Europeans, to the short-term detriment to the Malagasy industry. However, these circumstances also prompted Pakistani and Middle Eastern manufacturers to actively look for alternative manufacturing bases - and with its duty and quota free status to Europe and the USA, plus its established apparel manufacturing industry, Madagascar was a very interesting proposition.

Post 2005
The country's potential after international quota abolition on December 31, 2004 revolves around AGOA extension to duty free access on goods made from fabrics outside the USA or sub-Saharan Africa. The lack of locally produced yarns and fabrics is a key factor in the industry's future.

The new companies investing in Madagascar are large multinationals, and they are establishing a professional industry. As Coats explained: "We certainly would not have invested so much time and money in a state-of-the-art plant if we saw the industry here as anything but long term. Even if the companies who are only here for the duty and quota free status do leave, there will be a skills base and infrastructure to continue to attract new companies."

With few other employment opportunities, the industry is likely to remain low cost for another five or 10 years. A spokesman for the French jeans manufacturer Cote Sud said: "After 2005 the industry will continue to grow. It is small at present but the people are good workers and compared to China produce good quality. The country is well located - it takes only 20-24 days to ship to Europe, about half the time it takes to ship from China, and the communication is so much easier with only one hour time difference to mainland Europe in the summer, and two in the winter."

Another industrialist neatly summed up the situation: "Apparel exports doubled last year and are on course to double again this year. If the government gets its act together, Madagascar could be the Taiwan of the Indian Ocean within 25 years."

A second round of national government elections will take place in February 2002. The unilateral view is that who ever wins, the industry and the EPZ are now important assets for the economy.

Niki Tait, C.Text FTI, FCFI heads Apparel Solutions, which provides independent assistance to the apparel industry in the areas of manufacturing methods, industrial engineering, information technology, quick response.

The author would like to thank PRIDE (Programme Régional Intégre de Développement des Echanges) for arranging visits to over 30 companies in Madagascar, as well as the Elite Group and Murel, a British-owned Madagascan manufacturer of promotional jersey and sportswear, for their help.