East Africans have high expectations from ongoing continental and global integration

East Africans have high expectations from ongoing continental and global integration

Two potential windows of opportunity are simultaneously opening for the East African cotton-to-clothing supply chain: the African Continental Free Trade Area (AfCFTA) and the expected shift of garment production from Asia to Africa.

African governments are particularly proud of the African Continental Free Trade Area (AfCFTA), which officially entered into force on 30 May 2019. With 54 of the 55 member states of the African Union signing the agreement (Eritrea is the only omission), the move has created the largest trading bloc since the formation of the World Trade Organization (WTO) in 1995. 

The treaty is designed to remove trade barriers – and boost trade – between African nations with a combined population of more than 1.3 billion people and a combined gross domestic product of more than US$3.4 trillion. AfCFTA should also make it easier for African and foreign businesses to expand operations across the continent.

Included within the 54 signatories are key garment producing countries Kenya, Morocco, Madagascar, Mauritius, Egypt, Ethiopia, South Africa, Lesotho and Tunisia. 

Once implemented, the free trade agreement will require member nations to eliminate tariffs on 90% of goods traded between them, including clothing, within five years. A special dispensation has also been tabled for seven LDCs (least developed countries) – including Ethiopia and Madagascar – giving them a 15-year period to reach 90% of tariffs.

Cotton supply chain

What's in it for the East African cotton, textile and garment industry? According to some speakers at the recent Origin Africa trade show in Dar es Salaam, Tanzania, AfCFTA will boost regional cooperation among East African cotton growers, ginners, and textile companies. 

But nobody convincingly explained how this cooperation would lead to a reduction in exports of raw cotton and increase African added-value in the cotton supply chain. 

A more obvious consequence of AfCFTA will be that East African manufacturers of finished textile goods, either clothing or home textiles, can more easily expand into other African markets. 

Sceptics also wonder how many years it will take for the AfCFTA to function properly. The rules of origin will determine whether the trade pact will be a game changer, yet these still need to be clarified. This must be done within the next 12 months as the African Union has set 1 July 2020 as the start date for implementing the free trade area.

According to research by the United Nations Conference on Trade and Development (UNCTAD), rules of origin – the criteria that define the conditions that firms must comply with in order to authenticate that their goods originate from the FTA are and are thus eligible for preferential treatment – could make or break the AfCFTA.

Currently intra-African trade is a mere 15%, compared to around 47% in America, 61% in Asia and 67% in Europe, according to UNCTAD data for 2015 to 2017. Until now, the existing regional trade agreements in East Africa – the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC) – have shown meagre integration results. 

Also, what's the use of 90% tariff liberalisation between two neighbouring countries by 1 July 2020 if there's a poor infrastructure connecting these countries? 

A cry for designer recognition 

While doubting the rapid impact of AfCFTA on the East African cotton-to-clothing supply chain, there are some high expectations for individual companies' integration in global value chains. 

This is clearly the case of the Tanzanian fashion designers at Origin Africa. Meki Kalikawe, whose brand is 'Naledi', says: "When experts talk about the future of the African cotton-to-apparel value chain, the designers are mostly forgotten. However, at the end of the day, we are the ones who create most value. 

"Unfortunately, in my country this is not recognised by the government and by the large clothing companies. I went to India and saw there that designers can work with factories and that factories want to work with designers. Also in Tanzania, design could connect manufacturing companies with international demand." 

Antoinette Tesha, director of the Kenyan consulting company Msingi East Africa, stresses that African fashion is one of the few fashions worldwide to have a strong global identity. She pleads for making good use of this precious heritage. 

Tanzanian fashion designer Jamillavera Swai adds: "International designers and brands are very interested in our creations and shows, like the annual Swahili Fashion Week (taking place this year from 6-8 December in Dar es Salaam). However, though they get inspiration from us, they don't respect or reward our creative work as intellectual property." 

Shift from CMT to FOB exports

Msingi's Antoinette Tesha believes East Africa has a comparative advantage compared to countries like Bangladesh, Vietnam, Sri Lanka or Cambodia, which have never been cotton growing countries and yet have built successful garment export industries. 

However, much to the regret of the Tanzanian and other East African governments, most of the region's cotton lint is exported instead of being used for local production and export of textiles and garments. 

In Tanzania, a growing number of jobs have been created by companies like JD United Manufacturing from China (which produces denim articles, mainly for VF Corp); the Tanzanian-Sumitomo (Japan) joint-venture A to Z (knitted garments); and Mazava, a company of the Winds Group, with headquarters in Hong Kong (15,000 employees, and a focus on performance wear). 

However, the government would undoubtedly prefer if instead of cut-make-trim (CMT) garment factories, a number of local and foreign investors would set up FOB-oriented companies in Tanzania, producing yarns, fabrics and apparel in integrated hi-tech factories that would enjoy economies of scale. 

China's assertive push 

Since Southeast Asia is becoming increasingly expensive, many East Africans believe that within ten years their region will be the preferred investment base for Chinese textile and clothing groups. Indeed, the Chinese government and Chinese private companies are already showing great interest in East Africa

In Ethiopia, the new US$4bn Addis Ababa-Djibouti railway, constructed by the China Railway Group, significantly reduces transport time and costs – for example, Chinese textile materials entering Ethiopia via the port of Djibouti and for garments manufactured in Ethiopia to be shipped to consumer markets. 

In Tanzania, a US$10bn project to build a new modern seaport in Bagamoyo, some 50km north of Dar es Salaam, is backed by the state-owned China Merchants Port. However, in October 2019, the government of Tanzania issued an ultimatum to the Chinese investor to either accept and work with its terms and conditions of the contract, or leave. 

The American entrepreneur and consultant Samuel Meeks, the former international training director at Levi Strauss International, and now CEO of GCI (Garment Consulting International), lives in Madagascar and sees soaring interest from Chinese groups. He predicts that within two or three years Madagascar will be Africa's biggest apparel exporter to the US under the African Growth and Opportunity Act (AGOA), beating Kenya and all other AGOA-entitled sub-Saharan African countries. 

Mauritius and Eritrea are alone in East Africa to not have signed onto the Chinese Belt & Road Initiative. Even so, Mauritius last month signed a free trade agreement with China, its second biggest supplier.

And as reported recently on just-style, the governments of Mauritius and Madagascar are intensifying efforts to improve cooperation between the textile and clothing sectors of the two neighbouring Indian Ocean island states.

However, despite the much discussed potential of sub-Saharan Africa as an apparel sourcing hub, a recent analysis on just-style shows the region still has a long way to go before it can play a more significant role in the clothing supply chain.