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Madagascar Flourishes on AGOA Renewal, Factories Double Capacity to Accommodate Export Growth

Madagascar may have had its trade privileges under the African Growth and Opportunity Act (AGOA) suspended nearly six years back, but in the year since its benefits were reinstated, the island nation off the coast of Southeast Africa has regained its footing and its exports are growing exponentially.

In 2008, the year before the U.S. said it was pulling the country’s duty free privileges following a coup, Madagascar exported $300 million worth of textiles and apparel to the U.S.

Today that number is a much lower $35 million (as of August)—but those exports are up 96 percent over a no AGOA August 2014.

Losing the U.S. trade deal was certainly no boon, but Madagascar is picking up where it left off, expanding on its existing textile knowledge and positioning itself for added exports. And with a skilled workforce and labor among the world’s cheapest—minimum wage in Madagascar is around 124,243 Malagasy ariary ($38) per month, though with social security, medical benefits, transportation allowance and generally one meal per day on the job, factory workers can earn an average closer to $100 each month—the country is poised for sizable growth in the manufacturing sector.

At World Knits, a cut and make factory in Madagascar’s capital Antananarivo, capacity will soon be doubled to accommodate that growth.

John Hargreaves, the company’s managing director in Madagascar, said, “We are doubling capacity to over one million garments per month, the reasons being twofold: We have new business opportunities in our existing markets, and AGOA renewal and Madagascar’s renewed eligibility.”

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The U.S. renewed AGOA for 10 years—the first time the agreement has been renewed for that extended term—and investors feel they’ll finally have the time to make inroads in Africa.

World Knits has a fabric mill in Mauritius that supplies its cut and sew facility in Madagascar, where the company makes knit tops, pajamas and ready-to-wear for brands like Marks and Spencer, Woolworths, Puma and Adidas. Perry Ellis has started showing new interest in sourcing in Madagascar, too.

Factories in the country are already making haute couture garments for brands like Celine, Kenzo, Vanessa Bruneau and Agnes B.

In Mauritius, there’s a highly skilled labor force, though in limited quantities and at costs as much as five times that of Madagascar, which is why the country leans on its neighbor for labor.

“Mauritius has excellent, excellent communications with the world, logistics, airlines and a history,” Hargreaves explained. Mauritius built its garment sector from scratch 45 years ago and now the industry is fueling its economy. Before gaining independence in 1968, Mauritius was one of Africa’s poorest nations and now it’s the second wealthiest.

When it comes to Madagascar, the one looming problem with sourcing there is lead time. Because there are little if no viable raw materials there, the country has to import its fabric, which can inevitably add to supply chain delays.

World Knits, which employs roughly 3,500 workers, buys some yarn from Mauritius, but most of it comes in from Asia. The lead time out of Mauritius to the EU is 28 days, and to the U.S., that time can range from 30-50 days.

But AGOA’s reappearance in the country is expected to bring factories to the region, greater interest from brands and ideally bigger ships that could help improve on lead times.

Both countries have plans in place to improve roads and power supplies, and as islands surrounded by ports, the potential for better transportation out of Madagascar and Mauritius is already there.

The American Chamber of Commerce in Madagascar knows the country is primed for sourcing and is currently developing an AGOA resource center to help investors make the most of the incentives Madagascar offers.

Doing business in the island nations, according to Hargreaves, is “generally amazing.” And, he added, “Conditions in Madagascar and Mauritius factories are very excellent, very compliant.”