A continent vs. a country: China putting strain on Africa’s clothing and textile industries

2012-09-06 11:12:59

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The past decade has seen massive trade and investment between Africa and China, presenting both opportunities and challenges to the African people. China’s trade with sub-Saharan Africa soared to US$ 100 billion in 2010 from just US$ 15 billion in 2003.(2) China strategically partnered itself with Africa as a source of natural resources and as a consumer of Chinese finished goods, to feed its own strong economic growth. Consequently, China has become overwhelmingly influential in Africa’s economic and political landscape. The large scale and scope of China’s engagement with Africa could turn out to be one of the most significant developments for the region in recent decades.(3) However, with the many benefits to African nations’ economic growth and development prospects of China’s involvement, also come many costs.


As China’s economic relations with Africa extend beyond raw materials, Africa’s textile industries have not been spared from the unequal trade relationship between the two economies, which within the industry, is dubbed the ‘global textile struggle’. The huge influx of relatively cheap Chinese textiles and apparel has severely damaged the continent’s own production capabilities and output. Manufacturers and retailers have found it extremely difficult to compete with the low cost alternatives, which are appealing to many low-income earners. Ultimately, local manufacturers have been forced to either shut down operations or shed a huge part of their workforce. Recent reports have suggested an eruption of tensions over large-scale imports of cheap Chinese textiles in Kenya, Nigeria and South Africa.(4) This paper seeks to analyse the causes of these textile industry woes and the possible solutions for salvaging an industry vital to many African economies.


The crisis


Africa’s level of technological advancement and investment in capital has been relatively low compared to developed nations. Consequently, the clothing and textile industry has a high cost of labour, low productivity, slow turnaround time, a weak value chain and it cannot keep up with trends. Over the years, the industry has not been able to adjust sufficiently to challenges of greater import competition due to trade liberalisation and rising competitiveness from China.(5)


Africa’s textile industry was also heavily dependent on the African Growth and Opportunity Act (AGOA). AGOA, a United States (US) programme, gave sub-Saharan African countries preferential access to markets in the US, boosting African exports during the late 1990s and early 2000s.(6) As a result, Asian textile companies, including Chinese firms, established subsidiary companies in African countries, mainly Lesotho, South Africa, Swaziland, Nigeria, Ghana, Mauritius, Zambia, Madagascar, Tanzania, Malawi, Namibia and Kenya, in order to capitalise on the duty free access to the US market.(7) Clothing and textile exports from sub-Saharan Africa grew considerably during this period. The influx of Asian companies, however, put many local companies out of business due to the latter’s inability to compete with the Asian companies’ low production costs and technological superiority. Furthermore, when AGOA expired in September 2007, companies that exploited opportunities presented by the agreement took the biggest knock in terms of lost sales and jobs, evidenced by the drop of clothing exports to the US.(8) This was a sudden disinvestment from which Africa is still trying to recover.


Cause of tension


The overwhelming domination of China in Africa and the global textile and clothing industry has frustrated local manufacturers who find it exceedingly difficult to compete. This also discourages the development of local entrepreneurship stifling economic growth. A study conducted by Giovannetti and Sanfilippo on the impact of cheap Chinese imports on Africa’s markets found that “Africa’s manufacturing sector has been particularly vulnerable to the competitive threat posed by China, both in domestic markets and in terms of foreign exports” as they lag well behind regarding prices, speed to markets, labour productivity and quality of products.(9) Furthermore, by examining Export Similarity Indexes, Jenkins and Edwards, Goldstein and Reisen, and Zafar found that China has indeed become a major threat, mainly in the clothing industry and agricultural commodities.(10)


There is a great and ever-increasing demand in Africa for China’s low-price export goods, such as textiles and clothing, due to the acute poverty that remains prevalent in many areas across the continent.(11) The small size of African economies relative to those in the developed world also make African countries more receptive to inexpensive Chinese goods, thus they serve as major markets for these goods.(12) With the textile imports, Africa has effectively exported its own jobs and revenue to China. Job losses in Africa’s textile industry have been unprecedented adding to the continent’s unemployment woes. Consequently, development of the textile sector in the two regions has been unequal and unfair with China dominating the global textile and clothing industry.


The influx of low cost Chinese textiles and clothing into Africa has had the effect of putting many African manufacturers out of business which has sparked protests and harmed local industries in Lesotho, Swaziland, Uganda, Kenya, South Africa, Zambia and Morocco; factories have been shut down in many countries and it is estimated that 250,000 jobs and 37% of Africa’s textile capacity has been lost.(13) China’s share of South Africa’s total imports of clothing and textiles increased from 16.1% in 1996 to 60.7% in 2008.(14) Approximately 69,000 jobs have been lost in the South African clothing and textile sector over the last six years and labour unions have lobbied vigorously for protection to limit further job losses.(15) The impact of the job losses has huge social and economic ramifications as it also hits hard on these workers’ dependants. Despite the negative consequences, however, it must be noted that inexpensive imports from China have stimulated the informal market and consumers have benefited from lower prices. Furthermore, some jobs have been created in the retail sector, offsetting losses in the clothing and textile industry to an extent.(16)


While the retail sector in some cases may be benefiting, most African producers simply cannot undercut Chinese production costs and prices and compete with Chinese companies even in Africa‘s domestic markets.(17) Expatriate Chinese traders in textile and clothing have only exacerbated the situation by providing fierce competition to local retailers.(18) As a result, the demand for Chinese products has soared at the expense of locally produced goods. Even Africa’s traditional export markets have now also succumbed to China’s domination in the textile industry. Exports to these countries, like the US for instance, have plummeted with the preference for the cheaper clothing from China. Thus, African textile producers have been hit by a loss of global market share. This has, understandably, angered local producers as the global clothing and textile market is valued at around US$ 400 billion and is expected to grow 25% by 2020.(19)


There is undoubtedly an unbalanced trade pattern between Africa and China as China’s value of trade exports to Africa is far greater than its value of trade imports. This leaves Africa with a trade deficit and relatively short-changed in the unfair trade practice. While the economic activities of Chinese companies may stimulate local development to an extent, their dominant presence has stirred up some resentment amongst the locals.


The cost of labour in Africa is relatively high compared with China and it also has a more highly regulated labour market. Poor labour practices in Chinese owned textile manufacturing companies have also sparked tension. For example, Chinese clothing manufacturers in KwaZulu Natal, South Africa, have been under fire for failing to meet legal minimum wage and working conditions.(20) There also exists a strong presence and influence of labour unions in countries such as South Africa, which often exacerbate existing tensions in their bid to ‘protect’ the workers.


The recent emergence and escalation of Chinese-produced African prints has also contributed to the strained relations between Africa and China. This was a profitable niche market segment that African producers enjoyed and dominated as African prints were in demand not only in Africa but also in Western countries.(21) Now China has also entered and is actively competing in the same market. The manufacturing of African prints in China is seen as an insult to the African people and manufacturers who feel rights to commercial enterprise based on African cultural heritage should remain in Africa.


It is, however, unmerited to blame the textile and clothing crisis entirely on China. The Chinese have strategically capitalised on their comparative advantage of cheap labour and technological advancement. Africa has failed itself in managing increased competitiveness in the international textile market. Over-dependence on preferential treatment afforded by AGOA has also made the continent neglect other untapped markets such as South America. Lack of capital and technological investment and creation of a domestic value chain have also contributed to the current predicament. Protective trade measures have not so much protected local jobs and companies as they have promoted inefficiency and lack of competitiveness, thus proving to be more detrimental to economic progress than anticipated.


Possible solutions


According to Asante cited in McDougal, “African foreign policy must be Afrocentric in that it should prioritise the needs and concerns of African people first, and consider the long term implications of any foreign policy for the masses of African people.”(22) McDougal further contends that the growth and prosperity of Africa should ideally be per African requisites.(23) This has not been the case regarding textile and clothing industries on the continent. In as much as ordinary Africans may appreciate the cheaper clothing and textiles, the practice of importing cheaply from China rather than supporting local manufacturers is a disservice to the continent, as it threatens to wipe out Africa’s textile and clothing industry. Short-term relief with longer-term dire consequences is not justifiable. Regarding the lack of competitiveness of locally produced goods, Africa has to improve its knowledge and skills within the textile industry if it is to conquer the competition.


Skills deficiencies have been worsened by perceptions of university graduates that the textile industry is a ‘sunset industry’ and should be avoided when entering the business world.(24) More training and skills development should be provided in factories, colleges and universities. Investment should also be made in world-class machinery and equipment to improve productivity and product quality, and to allow the industry to operate with technical and economic efficiency. By so doing, local companies will provide alternatives to imports and will improve the African value chain in manufactured goods. Furthermore, the beneficiation of domestic raw materials must be encouraged leading to the development of “an integrated value and supply chain comprising agriculture, fibre production, textiles, finished textile products, clothing design and clothing manufacturing.”(25)


Rather than simply implementing protection measure, Governments should also consider subsidising and incentivising this economic sector to give it a boost. This is one strategy that has been successful in China in helping manufacturers keep their operational costs low. For instance, Government subsidies would lower or remove taxes on clothing and textile manufacturing equipment. Such benefits could then be passed on to the consumer in the form of good quality products at affordable prices. African Governments should also promote free trade rather than protective measures to encourage their local industries to participate in the global clothing and textile markets by becoming more competitive. Mutual cooperation through joint ventures with Chinese firms may improve African companies’ competitiveness and help integrate them into global and regional trade.


By siphoning investment from China, Africa may benefit from the transfer of technology and expertise, increased production capacity and job creation.(26) Notable illustrations of the success of such ventures include those related to textiles in Ghana and apparel manufacturing in Kenya, which have stimulated the export of semi-processed and processed goods and integrated local companies into global and regional corporate structures.(27) For the industry to survive, collaboration with China is inevitable.(28) However, when the Chinese firms have ownership and controlling stake, unfair acquisition may encourage exploitation, like, for example, in alleged cases of China selling exploration rights for Kenyan oil on the open market.(29)


Governments and the private sector must also jointly campaign to encourage the consumption of African produced and branded textiles and apparel. For instance, the ‘Proudly South African’ buy local campaign has helped consumers distinguish between locally and foreign made goods and encouraged people to support the former. The African Cotton and Textile Industries Federation also held a trade expo in April 2012 showcasing to international buyers African clothing and textile as the new frontier for business.(30) Manufacturers of clothing and textiles should also foster strong relationships with retailers by providing them with “better responses, follow-up services and shorter lead times.”(31)


A glimmer of hope


Africa has recently been on a growth path and the momentum is set to continue despite global recession. The substantial trade and investment between Africa and China has somewhat facilitated Africa’s economic recovery.(32) The International Monetary Fund Regional Economic Outlook 2012-2013 places sub-Saharan Africa among the fastest growing regions in the world with real gross domestic product growth projected to be 5.4% and 5.3% for 2012 and 2013 respectively.(33) This is a good time for Africa to boost investment in the manufacturing sector, including clothing and textiles, to get the most out of its comparative advantage of a rich endowment of raw materials. Furthermore, since the textile and clothing industry is highly labour intensive it has the potential to significantly reduce unemployment and poverty (34) on one of the most economically disadvantaged continents in the world, especially in the many poor areas with low skilled workers where few other prospects exist.(35) In the long run, Africa’s competitiveness in the textile industry and cotton production will be enhanced by China’s limitations in cost of land for cotton and industry productions, water shortages, drought and rapid urbanisation.(36)


Concluding remarks


China’s current domination of the clothing and textile industry in Africa seems set to continue, at least in the short to medium term. The transformation of China’s foreign policy over the past two decades or so is one of the primary reasons for its increasing involvement on the African continent.(37) While the exact nature and scope of that change is still very much under debate,(38) it is likely that China will continue to seek an ever more active role in global economic and poetical systems. This includes continued expansion into Africa, one of the world’s fastest growing regions both in terms of economy and political clout. Thus, China will continue to increase and intensify its bilateral relations with Africa including in the textile industry. However, there is reason to doubt that China’s increased economic engagement with Africa will facilitate substantial economic growth on the continent.(39) It is up to local Governments and businesses to capitalise on the continent’s natural resources and human capital and to revitalise domestic clothing and textile industries.


The underlying tensions between Africa and China, particularly in the textile and clothing industry, are symptomatic of the grave state of Africa’s textile and clothing industry which also extends into other economic and political issues. The success of the industry depends on fundamental restructuring and reorientation of the sector and a united front between the Government, industry and organised labour.(40) It is imperative that policies and interventions are formulated to protect the sector’s growth and development.(41) African products should also be made more competitive in terms of quality and price in order to create a sustainable long-term development path in the global market. There is urgent need for Government and private sector cooperation to revive this ailing industry through investments and incentives. If left unresolved, the Chinese textile industry could wipe out one of Africa’s potentially largest income generating industries to the detriment of local economies and people.


Source: CAI