Tanzania is targeting exports of around $50m a year on an FOB basis, within two to three years

Tanzania is targeting exports of around $50m a year on an FOB basis, within two to three years

Kenya, Ethiopia and Uganda are all ramping up their efforts to put Africa on the apparel sourcing map with a range of policies designed to encourage mills, manufacturers and buyers to invest. But another country vying for a slice of the action is Tanzania, with ambitions to offer the best overall package in Africa.

With just two offshore stitching enterprises taking advantage of their duty-free status on apparel exports to the US under the African Growth and Opportunity Act (AGOA), there's no doubt Tanzania is starting from a very low base.

But scratch below the surface and the east African country already appears to be making headway, with exports to the US last year overtaking those from Ethiopia for the first time.

Apparel shipments from the two countries were neck-and-neck at around US$10.3m in 2013, but exports from Tanzania pulled ahead by 68% in 2014 to reach $17.5m – while those from Ethiopia climbed 16% to $12.0m. It's a similar picture in volume terms too, with Tanzania jumping 47% to 15.5m SME (square metre equivalents), while Ethiopia slipped 5% to 6.9m SME.

"I'm hoping we will maintain that growth by attracting investment from offshore stitchers, and if they come in with knitting or weaving, that would be even better'. That's our target," explains Tim Armstrong, investment promotion director at Tanzania's Textile Development Unit (TDU).

"There's a lot of interest in Tanzania," he says, adding that expanding the industry to offer a range of options across several factories "will attract the big buyers; so we need to get the ball rolling."

Operating within the Ministry of Industry and Trade, the TDU is supported by the UK-based Gatsby Charitable Foundation and has recently broadened its scope from helping the existing industry to bringing in new investors and supporting them at every stage of the process. The Unit is also developing training programmes for textile and garment operators, supervisors and technicians, so that companies can rapidly train a competent workforce.

Dedicated to textiles, apparel and leather made-ups like gloves or jackets (but not footwear), the Unit is part of the government's focus on garment making as a priority sub-sector that will not only provide a significant number of jobs, but also drive the economic growth that will help the country achieve its goal of middle income status by 2025.

Track record in textiles
Tanzania is perhaps best-known as one of Africa's major cotton producers, with the average crop yield for the past three years reaching 275,700 tons of seed cotton – of which around 70% is exported as lint after being semi-processed.

But the country also has a long history in garment and textile production going back as far as 1966, including a big Chinese presence. The privatisation of state-owned factories in the 1990s has only recently seen the private investment that the industry needs, as local firms are starting to take advantage of Tanzania's large domestic market and regional export potential. More broadly the country's economy is now undergoing rapid economic transformation.

"Africa as a whole is attracting a lot of interest, especially from China," Armstrong agrees, adding: "Our objective is to catch up with Mauritius and Kenya [its immediate neighbour] and promote Tanzania as an origin for making garments with the potential to integrate knitting, weaving and spinning. Our main focus is to create jobs and secure critical mass in the industry here."

There are currently around 16 or 17 big factories in Tanzania, of which four or five export outside the East African Community (EAC). Two are just offshore stitching enterprises.

"We are targeting exports somewhere close to those of Swaziland at around $50m a year on an FOB basis, within two to three years.

Achieving this goal would require the addition of three or four new investments in stitching factories every year for the next two years, each with around $5-10m in annual FOB sales.

"Best investment destination"
Armstrong's message is that Tanzania "is the best overall destination for investing in Africa. You've got reasonable labour costs, large quantities of locally available cotton and yarn, you have a port, infrastructure, unrivalled market access regionally and internationally, but above all you have stability, with the same governing party since the 1960s."

The analogy he makes is with low-cost airlines: what looks cheap on paper becomes much more expensive once you start changing your plans.

One of Tanzania's trump cards is the construction of an $11bn megaport and industrial zone at Bagamoyo, which is being developed by China Merchants Holdings International, one of the world's largest port operators. The first phase of the work is due to be completed by 2017, with expansion over the next few decades to give an eventual capacity of 20m containers a year – making it the largest port on the east coast of Africa. Ground breaking starts in July (according to China Merchants Holdings). The TDU is hoping to designate a small area of the development as a garment cluster and to establish a coordinated package for textiles investors from across government.

"The key cost for the garment industry is the indirect cost of delay," Armstrong explains, "because if you don't deliver on time you risk cancellation or additional costs of shipping by airfreight."

As for other country competitors, he notes that while some in Africa have a lower base labour cost – Tanzania's is currently around $60-70 a month – at least in Tanzania there is no risk of a minimum wage suddenly being imposed. Armstrong believes. "It's better to start off having a reasonable living wage, which is what we have in Tanzania, and then you won't see a big jump in the future."

Export strategy
Like many sub-Saharan African countries, garment exports from Tanzania enjoy duty-free access to the US under AGOA. But the country also has similar access to European Union (EU) markets under an Economic Partnership Agreement (EPA) with the EAC, as well as Southern African markets through membership of SADC.

Armstrong's initial focus is on growing shipments to the US market, where exports of man-made fibre knitted shirts and blouses will benefit from a duty saving of up to 32%. Currently, 68% of apparel exports from Tanzania to the US are synthetic knit shirts for men and boys, "so I hope we can build on that."

The US Senate last week approved the extension of AGOA for ten years, and the House is now being urged to renew the legislation as quickly as possible. Armstrong adds that another benefit of the EPA with the EU is that once ratified it will not expire because it's not a unilateral deal like the GSP+, and that countries will not lose their access to the EU market as their economic status improves.

By having a focus on building a new mass stitching industry, Tanzania will also start with a "clean" industry without built-in compliance issues - and can leapfrog several stages of development with costs like labour remaining stable from day one.

"It is the intelligent person's choice for investing longer term in apparel and in Africa, and is an attractive place to live and do business in a stable political and social environment." And as Armstrong says again, it is "the best overall location for apparel making in Africa."