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Identifier
Created
Classification
Origin
05KINGSTON2163
2005-09-15 16:15:00
UNCLASSIFIED
Embassy Kingston
Cable title:  

TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS

Tags:   ETRD  ECON  EINV  XL  JM 
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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 03 KINGSTON 002163 

SIPDIS

STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

TREASURY FOR L LAMONICA

E.O. 12958: NA
TAGS: ETRD ECON EINV XL JM
SUBJECT: TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS
AND PROJECTION OF FUTURE COMPETITIVENESS

REF: A. STATE 146213

B. 03 KINGSTON 141419

UNCLAS SECTION 01 OF 03 KINGSTON 002163

SIPDIS

STATE FOR WHA/CAR/ (WBENT), WHA/EPSC (JSLATTERY)

SANTO DOMINGO FOR FCS AND FAS

TREASURY FOR L LAMONICA

E.O. 12958: NA
TAGS: ETRD ECON EINV XL JM
SUBJECT: TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS
AND PROJECTION OF FUTURE COMPETITIVENESS

REF: A. STATE 146213

B. 03 KINGSTON 141419


1. This cable responds to ref A tasking.

--------------
Background
--------------


2. Textiles and apparel became Jamaica's leading non-
traditional export during the early 1990s, after Jamaica
started benefiting from the Caribbean Basin Initiative
(CBI). The benefits from this U.S. program allowed the
sector to record robust growth between 1990 and 1995 and
were largely responsible for the mushrooming of the
island's non-traditional export sector. In 1990, export
earnings from the sector amounted to only USD 116 million,
or just under 10 percent of total exports, but by 1995
earnings surged to USD 619.6 million or 30.1 percent of
exports. However, the sector started to register
reversals in 1996, due to the onset of NAFTA and the
consequent diversion of trade to Mexico, as well as the
relative attractiveness of low cost Latin American labor.
The decline accelerated after 2000 due to the underlying
Jamaican macroeconomic environment within which
manufacturers had to operate, including frequent bouts of
exchange rate instability, high interest rates and
relatively high labor costs. These, combined with rising
utility and security costs, drove overheads through the
roof and local manufacturers exited the sector in droves,
while most free zone producers either closed operations or
relocated to other low cost destinations such as the
Dominican Republic.


3. Jamaica's textiles and apparel sector also became a
significant contributor to employment, particularly for
low-and semi-skilled women. Job creation in the free zone
rose to a high of 10,714 in 1995. However, by the end of
2004 employment had dwindled to 1,367. This dramatic fall-
off, combined with a commensurate decline in domestic
textiles and apparel employment, was largely responsible
for the rapid increase in Jamaica's female unemployment
rate, which was 16.4 percent at the end of 2004. Figures
from the free zone revealed that the textiles and apparel

sector has almost disappeared from the Jamaican landscape,
as earnings have fallen to USD 21.6 million or 3.4 percent
of exports at the end of May 2005. Free zone employment
through July 2005 has also sunk to a low of 128.
Recognizing that the country's once flourishing textile
and apparel sector was in trouble, the GOJ embarked on a
program to transform the industry from basic assembling to
full package production, which requires value-added
processes, fabric supplies and a highly skilled labor
force. In the last two years Jamaica has also been
creating waves in the international fashion markets and,
unlike the previous foray, the recent thrust has been
largely private sector driven.

--------------
Answers To Reftel
--------------


4. Total Jamaican industrial production for 2004 was USD
1.1 billion, while textiles and wearing apparel output for
the same period was 8.3 million or 0.8 percent of
industrial production. Data is not yet available for

2005. Free zone production is not counted as part of GDP
or domestic exports.

b. Textiles and apparel exports amounted to USD 137.2
million (includes free zone) in 2004 and USD 21.6 million
for January to May 2005. Textiles and apparel imports for
January to September 2004 were USD 91.7 million. Import
data is not yet available for 2005. Textiles and apparel
exports accounted for 8.9 percent of total exports in 2004
and 3.4 percent for January to May 2005, while textiles
and apparel imports accounted for 3.2 percent of total
imports.

c. Total manufacturing employment was 69,400 in 2004 and
73,000 for the first six months of 2005. Total free zone
textiles and apparel employment was 1,367 during 2004, but
has declined to 128 at the end of July 2005. No data is
available for domestic employment in 2004 or 2005. When
domestic employment data was last published in 2002,
12,054 persons were employed in large establishments
(companies employing a minimum of 50 persons). It is
relatively safe to assume that the number of employees has
fallen in tandem with the decline in output and earnings
(down 30.3 and 82.6 percent, respectively).

--------------
Additional Information Requested
--------------


5. Despite the downturn in Jamaica's textiles and apparel
industry, the country's producers have not seen much
change in prices. Producers have been receiving a similar
number of orders, but local operational costs (including
shipping) have risen faster than competitors' costs have
risen in China, India and Pakistan. According to Kenrick
McFarlane of the Port Authority of Jamaica (PAJ), North
American and Far Eastern companies who set up operations
in Jamaica primarily to benefit from quota restrictions in
their home markets were forced to close their factories
and relocate.


6. Jamaica's export prospects have not been affected by
the U.S. safeguards or the EU agreement with China to
limit the import growth of certain textiles and apparel
products. Arlene Martin of JAMPRO told emboff that the
GOJ has not seriously considered the implementation of
safeguards or other measures to reduce the growth of
imports because the industry has been declining for such a
long time. McFarlane, in supporting this view, said that
once the GOJ realized that the country had become
uncompetitive, apparel production was de-emphasized and
information technology became the rising star.


7. The increased global competition has not affected
local labor conditions. On the contrary, it is the
increasing labor costs relative to competitors that have
been one of the major reasons for the demise of the local
industry. Jamaicans working in the textiles and apparel
industry are generally paid a premium above the country's
minimum wage, which acts as a floor. Therefore with each
annual increase in the country's minimum wage, there is a
commensurate increase in wages paid in the industry.
Jamaica's labor rates are currently over USD 1.50 per hour
and rising.


8. Given that the garment industry has been a major
source of employment and export earnings for the last
decade, the GOJ took a number of steps to stem its demise.
The PAJ'S McFarlane said that in the latter part of 1999 a
fund was established to reduce operational costs, but the
resources were exhausted in one year and most of the firms
that benefited closed shop thereafter. Michael Anderson
of the Kingston Free Zone also explained that the GOJ made
frequent adjustments to the Free Zone Act to make it
easier for companies that did not fit the free zone
profile to benefit under the act. In addition, the free
zone constantly reduced rental cost and improved security
arrangements. Attempts were also made to improve the
bureaucracy at Customs, resulting in a significant
reduction in red tape. JAMPRO'S Martin told emboff that
the GOJ also discussed the revival of the textile
industry, but no action was taken. She said the GOJ
agreed instead to concentrate on the development of the
design products market. However, Martin said that the
country was already experiencing production problems in
this niche market and serious consideration was being
given to the idea of outsourcing production to other
countries.


9. Jamaica is currently a beneficiary of Caribbean Basin
Trade Partnership Act (CBTPA), but McFarlane of the PAJ
said that not even the benefits under this program were
sufficient to cushion the high overhead costs. (Ref B).

10. When asked about the future of the country's textiles
and apparel industry, Anderson said the sector was dying a
slow death, largely because producers cannot deal with the
competition from lower overhead producers in Mexico and
China. He said that the largest remaining producer closed
shop earlier this year, leaving only two apparel firms
employing 46 people in the Kingston Free Zone. When posed
the same question, McFarlane opined that the sector has
structural problems, which will make it impossible for
manufacturers to produce large volumes and remain
competitive. He pointed to energy and security costs as
the major problems. JAMPRO'S Martin, who shares a similar
view, said that the fashion industry (designer clothing)
is now Jamaica's best option, since this higher value-
added product already enjoys a presence in the
international marketplace. However, she suggested that
serious consideration has to be given to outsourcing
production.


11. The Jamaican textile and apparel industry faces a
number of challenges. Chief among these are the removal
of preferential access to key markets following the
removal of the quota system; competition from low cost
producers; a large untrained labor force; small factories
that inhibit the achievement of economies of scale;
dependence on a few markets and on imported inputs; and,
high overhead costs. Therefore, unless the country
creates niche markets in the very short term, the sector
could be decimated before the end of 2005.

TURNER