Identifier
Created
Classification
Origin
04LILONGWE1108
2004-12-02 09:17:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Lilongwe
Cable title:  

GARMENT MAKERS NOT PANICKING ABOUT QUOTAS

Tags:  ECON ELAB ETRD KTEX MI 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 LILONGWE 001108 

SIPDIS

SENSITIVE

STATE FOR AF/S A. GALANEK
STATE PLEASE PASS TO DEPT OF COMMERCE
GABORONE PLEASE PASS TO SAGC AMANDA HILLIGAS

E.O. 12958: N/A
TAGS: ECON ELAB ETRD KTEX MI
SUBJECT: GARMENT MAKERS NOT PANICKING ABOUT QUOTAS


-------
SUMMARY
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UNCLAS SECTION 01 OF 02 LILONGWE 001108

SIPDIS

SENSITIVE

STATE FOR AF/S A. GALANEK
STATE PLEASE PASS TO DEPT OF COMMERCE
GABORONE PLEASE PASS TO SAGC AMANDA HILLIGAS

E.O. 12958: N/A
TAGS: ECON ELAB ETRD KTEX MI
SUBJECT: GARMENT MAKERS NOT PANICKING ABOUT QUOTAS


--------------
SUMMARY
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1. (SBU) Despite the impending demise of quotas, Malawi's
garment makers expect to see few changes in the U.S. market
in the near future. They are banking on the prospect of
protective measures against China becoming a reality in the
next few months. Malawi-based companies also have lower
capital investment and lower operating costs than regional
competitors, which makes them less concerned about the long
run. The GOM, meanwhile, has done nothing to prepare for
potential downturns in the industry. End summary.


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GARMENT BUSINESS AS USUAL
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2. (U) In the face of the beginning of the end of quotas in
January 2005, Malawi's garment manufacturers are taking a
"wait and see" approach. Recent conversations with several
garment industry executives have shown that they expect the
USG to implement some last-minute restrictions on Chinese
imports to the U.S., which would give them at least momentary
breathing space under the African Growth and Opportunity Act
(AGOA). The manufacturers are generally not planning any
drastic changes in their operations or investments.


3. (SBU) One manufacturer is suspending plans for one year
its plans to build a plant for the U.S. market. Others have
told us that they intend to work on cutting costs and to
lobby the GOM to make faster progress on the Nacala Corridor
project, providing cheaper and more reliable access to sea
shipping. In general, though, the industry here seems to be
operating on the assumption that their U.S. markets will
remain fairly stable over the next year.


--------------
SHORT-TERM CONFIDENCE IN MALAWI'S ADVANTAGES
--------------


4. (U) At least one Malawi-based manufacturer describes the
labor environment as an advantage for Malawi over other
African countries. Workers here earn about $30 per month, as
opposed to $120 per month in Lesotho and even more in
Swaziland. This is expected to continue balancing out
Malawi's very high transportation costs. Other advantages
include a better security environment and docile unions.


5. (SBU) Another advantage not cited by the garment makers is
the low level of capital and organizational investment here.
Factories tend to be cheaply leased, re-purposed buildings
with few fixed capital improvements; most management staff is
typically resident aliens. Thus, current operating costs
account for nearly the whole picture, and long-term prospects
are less important than in locations where more has been
committed. Simply put, Malawi's garment makers are focused
almost exclusively on the short term.



6. (SBU) The Government, meanwhile, was unaware of the
impending changes until we mentioned it in recent
conversation with Trade Ministry officials. Not
surprisingly, they have made no plans for potential shifts in
the export market nor for the unemployment that would almost
inevitably follow. Embassy is undertaking an effort to help
the GOM focus on developing an export strategy, which
includes using the Southern Africa Global Competitiveness hub
to target other potential AGOA exports.


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COMMENT: GOVERNMENT NOT ENGAGED
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7. (SBU) Malawi-based manufacturers' apparent unconcern over
the lifting of quotas may be partly naivete, but we interpret
it as mostly a sign of their confidence in the U.S. garment
industry's lobbying ability. Certainly they have their
reasons for short-term equanimity. But the Government's
ignorance of the situation and its longer-term implications
is more worrisome. AGOA is estimated to account for some
7,000 otherwise scarce manufacturing jobs here, and the GOM
has little idea what is happening in the sector. We view
this as symptomatic of the GOM's general lack of effective
engagement with the private sector and with the
nuts-and-bolts trade issues affecting it. Changing that
situation will be key to energizing Malawi's economy.

GILMOUR