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Sourcing in Africa Could Quadruple in Coming Years

It may not be news that certain countries in Africa enjoy duty free access to both the U.S. and EU markets, but many haven’t yet grasped what that savings could mean.

The U.S. and EU markets consume more than half of the world’s apparel, so having duty free access to that market is a substantial opportunity, Gail Strickler, president of global trade for Brookfield Associates and former Assistant U.S. Trade Representative for Textiles at USTR, said at a Destination Africa panel in Cairo this month.

And the time for tapping into that opportunity is right now.

“Retail is having a really hard time,” Strickler said. “The only way that brands and retailers are going to pull any more money out of what they’re doing is to save on duties.”

Sixteen countries in Africa, including Ethiopia, Lesotho, Madagascar and Tanzania, enjoy duty free access to both the U.S. market under the African Growth and Opportunity Act (AGOA) and to the EU under the Everything But Arms (EBA) program.

That means, according to Strickler, that retailers can source for 50 percent of the global apparel market duty-free from a single location.

So far, both AGOA and QIZs have been “seriously underutilized,” Strickler said, as the two combined only account for around 2 percent of U.S. imports.

The average apparel duty savings would be 16 percent in the U.S., and an average of 12 percent in the EU.

For the U.S. specifically, Strickler said over the 10 years of the AGOA program and the indefinite Qualifying Industrial Zone (QIZ) program that affords Egypt duty free access to the U.S., exports out of Africa could easily quadruple.

If they did quadruple, that could mean a potential $480 million in duty savings over the life of AGOA.

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Looking at the numbers a little more closely, Strickler said 43 percent of all tariffs collected by U.S. Customs and Border Protection (CBP) come from textiles and apparel, and those importing textiles and apparel currently pay more than $11 billion in tariffs.

With duties reaching as high as 32 percent in the U.S. and 20 percent in the EU, the savings opportunity is all but small.

“You could be lowering your customer cost by 32 percent,” Strickler said to a room full of brands interested in sourcing in Africa and manufacturers interested in supplying them.

The opportunity now will be to take advantage of the highest duty products, like knitted manmade tops (32 percent), knitted/woven manmade outerwear (28 percent) and woven synthetic bottoms (28 percent), and begin production in those areas.

What’s more, she added, “Return on investment right now in Africa is the greatest in the world and it is expected to continue being so until at least 2025. So you really are here at the beginning of a new generation on this continent.”

Sourcing in Sub-Saharan Africa with AGOA

All eyes have been on Sub-Saharan Africa for sourcing as the middle class in the region has continued to grow, improvements are being made to infrastructure and the growth in working age population is expected to be the highest in the world over the next 20 years.

AGOA, which was just renewed last year for 10 years, allows for duty-free access to the U.S. for all clothing and some textile exports from qualifying Sub-Saharan African countries.

Of the 41 AGOA eligible nations, 26 qualify for the textile and apparel benefits.

Kenya is the biggest exporter of textiles and apparel to the American market out of the AGOA nations, sending $380 million worth of goods stateside in 2014, followed by Lesotho at $290 million and Mauritius with $223 million.

The biggest category of exports was men’s/boy’s woven cotton trousers, followed by men’s/boys’ woven cotton shirts and manmade fiber sweaters.

Sourcing in Egypt with QIZ

As part of the U.S.-authorized QIZ program, Egypt can export goods to the United States duty free as long as the products contain 10.5% Israeli inputs, an effort to increase partnership in trade between the two nations.

There are six zones in Egypt where companies can produce goods to take advantage of the trade privilege: Greater Cairo, Alexandria, Suez Canal, Central Delta, Beni Suief and Al Minya.

Egypt’s total global exports have risen roughly 350 percent since 2007, most of it going to the U.S. and EU. Fifty-seven percent of the exports to the U.S. are of textiles and apparel, and 52 percent of total exports are imported through QIZs.

The country’s top three exports to the world are woven apparel (26 percent), cotton and yarn/fabric (18 percent) and knit apparel (17 percent). The U.S. takes in mostly woven apparel (44 percent) from Egypt.