MALAWI LOSES GARMENT MANUFACTURER

UNCLAS LILONGWE 000177

SIPDIS

SENSITIVE

STATE FOR AF/S ADRIENNE GALANEK
JOHANNESBURG FOR FCS
GABORONE FOR SAGCH AMANDA HILLIGAS

E.O. 12958: N/A
TAGS: ECON ETRD EIND MI AGOA BUD FIN
SUBJECT: MALAWI LOSES GARMENT MANUFACTURER

REF: A. 2004 LILONGWE 1108

B. MASERU 0048

This message is sensitive but unclassified--not for Internet
distribution.


1. (U) SUMMARY: Haps Investments, one of Malawi's largest
AGOA garment manufacturers, has ceased operations, putting
over 2,000 employees out of work. The closure stems from the
financial failure of the Taiwanese parent company, which
apparently faltered as a result of losses suffered at its
operations in Lesotho. Though the failure does not result
directly from the end of textile quotas, it may at last focus
the Government on the need to respond to the end of quotas.
End summary.


2. (SBU) Haps Investments, which exported to a number of
large U.S. buyers, closed its doors as usual for the latter
half of December, releasing employees for the holiday period.
Beginning in early January, the company announced a series of
one-week delays in its opening. By the end of January, the
plant's 2,500 employees reached the conclusion that it would
not reopen and alerted the GOM and their labor unions. The
company has not announced the closure, and the Taiwanese
managers have reportedly stayed in Taiwan since the holidays.
The Taiwanese embassy finally made the company's closure
public earlier this week and has taken responsibility for
paying off the workers. Malawi's High Court is expected to
appoint a receiver in March to sell off the company's assets
and pay the roughly $200,000 in local debts.


3. (U) The closure has sparked speculation in government and
industry circles that it is the first of a series of closures
and layoffs generated by the end of Multi-Fibre Arrangement
(MFA). This nervousness runs against our earlier sense that
garment makers here are generally unconcerned about the end
of garment quotas, at least in the near term (ref A).


4. (SBU) As it happens, the closure has nothing to do with
the demise of garment quotas. As we recently learned from the
Taiwanese diplomatic mission here, Haps's Taiwanese parent
company, Haps Investment Company, has suffered large losses
in its Lesotho operations over the past two years, largely as
a result of the rising value of the SA Rand and Lesotho
Maloti (ref B). Toward the end of 2004, the company found
itself unable to service its debts (it is reported to have
taken out a $6 million bank loan recently) and ordered the
closure of all overseas operations. The Malawi operation is
essentially a collateral casualty of the parent company's
larger problems.


5. (SBU) COMMENT: While the Haps closure is not directly
connected to the demise of the MFA, its sudden failure is
focusing the minds of GOM officials who did not even know
about the end of quotas until we told them last year (ref A).
The engagement of the Ministry of Trade and Private Sector
Development on AGOA issues--and on trade development in
general--has been unimpressive up to now; whether this will
change with a new minister remains to be seen. The current
visit of the AGOA advisor from the Southern African Global
Competitiveness Hub may help the GOM with some ideas for
expanding AGOA exports beyond the threatened cotton garments.
As we will report by septel, in our initial meetings on this
topic, the GOM brought little to the table besides requests
for more money.

GILMOUR