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Africa Starts to Blossom as Apparel Sourcing Destination

The fertile ground of African apparel sourcing is finally turning from seed to sprout after years of its potential lying dormant.

Driven in part by a desire among companies to diversify their production strategy in light of the trade war between the United States and China—the long-time stalwart of apparel manufacturing for American companies—along with the limitations and risks of alternative supplier nations, a group of African nations is emerging as a viable sourcing option.

U.S. apparel imports from Sub-Saharan countries primarily part of the African Growth & Opportunity Act (AGOA) trade preference program increased 17.97%, to $659.71 million, year-to-date through July, compared to the same period in 2017, according to the Commerce Department’s Office of Textiles & Apparel (OTEXA).

Margaret W. Waithaka, director of trade promotion and AGOA at the East Africa Trade and Investment Hub, said apparel is the major non-oil export product under AGOA within the seven East African states that the East Africa Trade and Investment Hub’s trade program supports.

“The Hub has been working with private sector, trade associations, certification bodies and national governments to expand apparel exports to global market and particularly to the United States under the Africa Growth and Opportunity Act, which provide duty free access to the United States for 6,421 tariff lines, including apparel, home textiles, travel goods and  footwear,” Waithaka said.

Steve Lamar, executive vice president at the American Apparel & Footwear Association, said, “We think that Africa is going to become more important as a sourcing destination over the coming years. We’ve long felt that in an industry that is constantly looking for the next thing … there’s few places that are not tapped out already. And when you look at Africa, there’s a lot of untapped potential.”

On top of that is the “incredible sourcing chaos the trade war with China is causing and you’ve got a lot of companies that are now saying things like, ‘I’ve been talking for years about diversifying, now I really have to do it,’” Lamar said. “Companies are trying to develop broader sourcing strategies that are moving production and supply chains out of China into other locations. Whenever we have these conversations with member companies, African countries are mentioned.”

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Lamar said while African manufacturing is still nascent in many ways, there are clusters in various countries that have begun to establish themselves. He also noted that while the numbers are still small, “Vietnam was once a small supplier, Bangladesh was once tiny,” and now both are critical places for many countries to produce.

In terms of size and experience, Egypt leads the way as a continental supplier, with apparel imports from the North African country increasing 16.33%, to $480.18 million in the period.

In potential and pace of growth, Ethiopia is the star, with the United States importing 106.69% more goods, reaching $55.02 million so far this year.

“Ethiopia … in the past decade has implemented an aggressive investment promotion program targeting Asian investors in apparel and textiles,” Waithaka said. “This promotion has been matched with concurrent development of large industrial parks with requisite infrastructure for textile and apparel production, along with strong policy support to develop a competitive cotton based textile industry. This has attracted interest from large buyers like PVH Corp. and H&M who then set up sourcing offices in Ethiopia.”

PVH was selected as one of two winners of the 2018 U.S. Secretary of State’s Award for Corporate Excellence, an achievement recognizing U.S. firms that uphold high standards of responsible business conduct. PVH is receiving the Sustainable Operations award as lead investor of a best-in-class apparel manufacturing facility in Hawassa, Ethiopia.

“We are in a unique position to make positive impacts in the places around the world where we work and live,” Emanuel Chirico, chairman and CEO of PVH Corp., said. “One of those places is Ethiopia, where we set out almost five years ago to create a sustainable, vertically integrated apparel manufacturing industry.”

The Hawassa Industrial Park is expected to result collectively in 60,000 jobs within a few years and features state-of-the-art machinery focused on environmentally advanced practices. The park’s Zero Liquid Discharge effluent treatment facility recycles over 90 percent of the wastewater produced in the park. This helps preserve Lake Hawassa, which serves as the community’s water supply and is the center of the local ecosystem.

“Ethiopia is increasingly able to provide a vertically integrated apparel sourcing solution, which with its relatively affordable labor is able to overcome historically higher than average logistics costs and relatively inexperienced labor force,” Waithaka said. “Other industrial parks are planned for Kombulcha and Dire Dawa.”

Waithaka and Lamar both noted that several other African countries are also becoming players. Kenya’s shipments rose 16.44%, to $212.69 million in the year through July, while imports from Lesotho increased 8.05%, to $164.41 million.

Madagascar’s shipments were up 27.74%, to $106.2 million, and Morocco’s rose 3.65%, to $77.08 million. On a smaller scale, Tanzania’s shipments rose 1.58%, to $22.27 million, while goods coming in from Ghana gained 70.26%, to $7.6 million.

Waithaka said Madagascar’s growth stems from its re-establishment as a competitive AGOA-eligible exporter in 2014. Madagascar already exports successfully to Europe, and expansion into the U.S. was relatively easy due to its cost-effective labor and superior workforce skills.

“Despite this overall success, there are indications that some East African apparel exporters can do better,” she said. “Some larger, more experienced exporting countries are facing competition and their exports have been stagnating and in some cases, even declining. The leveling of these exports points to a need for larger players in these countries to identify their value proposition to U.S. buyers more clearly and identify that buyer who is willing to source not at the lowest price but willing to pay for better value.”

The Trump administration has taken notice of Africa’s trade potential. Following up on a report delivered to Congress at the end of June, U.S. Trade Representative (USTR) Robert Lighthizer said the administration wants to move swiftly to start talks on a free trade agreement that goes beyond AGOA.

“AGOA has provided an important framework for our economic engagement during these last two decades,” Lighthizer said. “But by 2025—when AGOA is set to expire—it will be a quarter century old and we cannot predict what will happen at that time.”

The USTR said “we should seize the moment” and pursue a new, forward-looking agreement “for the future of U.S.-African trade.” He said, “This vision should recognize that sub-Saharan Africa looks very different in 2018 than it did in 2000 when AGOA was first created. We believe that there are countries in Africa that are ready to move from AGOA beneficiary to U.S. free trade agreement partner.”

Last week, the Committee for the Implementation of Textile Agreements increased the limits on duty- and quota-free imports of apparel articles assembled from regional and third-country fabric under AGOA. For eligible apparel exported from AGOA countries to the U.S., the limits will increase 1.3% for fiscal year 2019 from this year’s level.