Assessment of AGOA: implications for Namibia

This AfricaFocus Bulletin contains excerpts from two 2007 reports on the garment industry and AGOA, drawing on the cases of Namibia, Lesotho,and Swaziland.

1.1 Introduction

Sub-Saharan Africa has recently received substantial foreign investment in the garment industry, since the US drew up the Africa Growth and Opportunity Act (AGOA). This act is removing barriers to trade between the US and Africa, and has also facilitated the growth in trade in garments from Africa towards the US. Governments in the various countries have put a great deal of effort into attracting the garment industry, and have competed with their neighbouring countries in offering incentives for manufacturing companies to start production - and later on to continue production - in their countries.

Have these efforts been beneficial for the countries in question and who has really gained from these efforts? What have been the consequences of attracting what is known to be an unstable, footloose industry? This report brings together various case studies and analyses, and looks at the consequences of this investment for those that it should ultimately benefit; the population and workers in the garment industry in the various countries in Africa.

This report focuses on Lesotho and Swaziland as two countries that received a share of the foreign investment in the wake of the AGOA, and whose garment industries and exports have grown substantially. ...

6. Critical Issues

So far the AGOA has predominantly benefited the foreign investors that came to Sub- Saharan Africa to profit from the tariff benefits under the trade arrangements, and from the incentives provided by the various governments. In the race to attract this investment, African governments have provided substantial incentives to the industry, ranging from 0% taxes to full rebates on imports to providing factory shells and infrastructure. When they arrived in these countries, the investors identified the AGOA as the main attraction, and the incentives were more the icing on the cake. Nevertheless, for the countries in question these incentives could mean the difference between benefiting from the investments in the garment industry or totally losing out. ...

What becomes clear is that, following the MFA [Multi-Fibre Agreement] phase-out, a substantial number of companies closed down, most without paying benefits to their workers, some leaving large debts unpaid. Nevertheless, a considerable number of companies decided to continue producing, while still trying to squeeze out a bit more from the governments in their host countries. There are several interesting initiatives, notably in Lesotho, that could (potentially) improve the lives and working conditions of the workers in these industries, but a thorough study is needed to make sure that they are not, once again, geared towards benefiting the companies. ...

6.1 What have the countries gained?

The question is whether the AGOA has benefited the economies and the workers, specifically when looking at the benefits of the garment industry. ... Governments, with the support of donors, have put a great deal of effort into attracting investment, foregoing taxes, investing money in factory shells and in highly specific infrastructure, while turning a blind eye to labour abuses. ...

Neither downward pressure on labour rights nor government incentives have prevented companies from leaving the African countries where they temporarily had a presence. This creates ever more desperate attempts by countries to keep the investors, in an industry that has already cost countries too much, by offering better incentives. For instance, a company like Tri-Star was able to use the desperation of a country like Uganda for foreign investment to get the government to provide and invest in buildings and infrastructure, secure loans and credit facilities. The company left the country without repaying any of its debts, leaving behind a destitute workforce that did not even have enough money left to pay the bus fare home. And this happened after the company had already abandoned factories in Tanzania and Kenya, without repaying its debts or paying off its workers.

As is clear from the reports on the different countries, by focussing on the garment industry, countries have not accelerated industrial development in a way that enabled the countries to create new productions systems or develop the innovative capacity to input into new or existing industries.

The mostly Asian companies that have invested in the industry in Swaziland and Lesotho, for example, have invested very little in the local economies or in their own companies. Most of the companies were given factory shells, rebates, tax-free import of machinery, tax holidays, etc., without contributing much themselves. This has made it much easier for companies to start production in a country, sometimes even for a very short time period, and to leave without looking back. ...

6.2 Factory closures

As is clear from the chapters on Lesotho and Swaziland, there are no safety nets to assist workers if their factories close down or they are dismissed. Even if they are given terminal benefits, the amounts are so low that they have spent the payment within a few weeks. Companies are not informing the government nor the workers when they plan to leave the country, nor are there mechanisms in place that could stop companies from leaving. There is not enough effort being made to prevent companies fleeing the country. If they leave, there are no mechanisms in place to make sure that they pay their debts to the workers, to their suppliers, to the national banks, etc.. Governments do not set up funds for companies in which they can put deposits in case they declare bankruptcy or suddenly leave the country. Workers are often left in the cold, without their terminal benefits, sometimes without their wages for the last months and without a social plan to mitigate some of the adverse effects of the sudden unemployment.

The factories use their position to bargain for better investment conditions. For countries desperate for foreign investment and employment, this does not seem like such a bad deal. The costs incurred when companies close are high, however, both economically and socially. If the companies flee the country, they leave behind a shell and infrastructure that was constructed specifically for their needs, and for which the country has incurred high costs.

With factories closing or threatening to close, the workers are put in a complicated position. You have no real bargaining power if you expect your factory to pack up and leave at any time, and the threat of closure can always be used by the management, whether implied or real. In this situation, it is unlikely that workers will negotiate for better wages and improvement of labour conditions. As more and more factories are closing down, the possibility of finding employment elsewhere is also decreasing.

...

6.4 Employment in the garment industry

It is unquestionably the case that the most important sector in terms of employment under the AGOA has been the garment producing sector, due to the labour-intensive nature of garment producing factories and the surge in the industry. A proportion of these jobs in the sector in fact existed before the creation of the AGOA, or were associated with trade with other countries. Malawi, for example, used to export predominantly to South Africa. Since the AGOA came into existence, producers in Malawi have shifted their focus to the United States market, although employment in the sector has remained much the same.

Most of the jobs in this industry are low skilled, with very few people advancing or being trained on the job. Most of the foreign-owned companies fly in their own management, and other top and middle management are recruited in China and India, for example.

Drawn by trade agreements and other incentive programmes to countries desperate for foreign investment and jobs, investors, including Asian investors, have been able to circumvent local labour laws, as well as internationally agreed labour standards laid down in ILO conventions. In Swaziland, for example, violations documented at Asian-owned factories in the last 6 years include forced overtime, verbal abuse, sexual intimidation, unhealthy and unsafe conditions, unreasonable production targets, and anti-union repression. In 2001, when asked about their influence, the Department of Labour in Swaziland admitted that in an attempt to keep investors happy it did not pursue labour law violations to its fullest ability. They say they "can't push investors too hard," but instead are "very gentle and persuasive". Another example is the sacking of the 'AGOA girls' by the President of Uganda because the workers were "not disciplined" when they protested against bad labour conditions. While investors can see profitable returns on their investments, one wonders if workers and their communities really benefit when wages and conditions are substandard and tax abatements and subsidized infrastructure mean that little money goes back into the community. The argument that workers would otherwise have no jobs or no income should not be an argument to sustain exploitation that has consequences for generations because workers cannot even send their children to school.

* AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter. AfricaFocus Bulletin can be reached at [email][email protected]