AUSTR Encourages Madagascar to Build on AGOA Success

UNCLAS SECTION 01 OF 02 ANTANANARIVO 000160

SIPDIS

SIPDIS

STATE FOR AF/FO AND AF/E
STATE PASS USTR FOR PCOLEMAN
USDOC FOR BECKY ERKUL - DESK OFFICER

E.O. 12958: N/A
TAGS: ETRD AGOA EINV ECON MA
SUBJECT: AUSTR Encourages Madagascar to Build on AGOA Success



1. SUMMARY: AUSTR Liser engaged public and private AGOA partners
during her February 6-8 visit to Madagascar. While the AGOA
third-country extension will boost the apparel sector, Madagascar
also shows promise in diversifying exports to the United States.
High cost and reduced service in shipping was highlighted as an
obstacle to Madagascar meeting its trade potential. END SUMMARY.

Policy Discussions with GOM
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2. Assistant U.S. Trade Representative for Africa (AUSTR) Florie
Liser and USTR Africa Director Coleman engaged public and private
trade leaders during a visit to Madagascar February 6-8. The
Economic Development Board - Madagascar (EDB-M) hosted a policy
discussion led by EDB-M CEO Prega Ramsamy and Advisor John
Hargreaves, also including officials from the Ministries of Trade,
Industry, and Mines at which the GOM's trade strategy was outlined.
CEO Ramsamy said the time to register a company had been cut to
three days by consolidating all relevant bureaus at the EDB-M
office. He said he has obtained "delegated authority" to vet and
approve investment deals in priority sectors like tourism,
agro-industry, infrastructure, and light engineering. Mining,
represented by Permanent Secretary Rajaonson, will remain separate
from the EDB-M due to the technical expertise required in that
sector.


3. Hargreaves, a long time apparel factory manager and AGOA
advocate, predicted a 20 percent increase in AGOA apparel exports
from Madagascar in 2007; creating 15,000 new jobs. He also outlined
the EDB-M's plan to host a regional apparel conference and expo
November 7-9 to promote AGOA clothing suppliers and attract buyers.



4. In a separate meeting, the President's Chief of Staff, Ivohasina
Razafimahefa, took on board AUSTR Liser's recommendation that a new
Task Force on the Africa Growth and Opportunity Act (AGOA) be
convened to complete a new Action Plan. In this and other meetings,
AUSTR Liser educated her counterparts, highlighting opportunities
they might be missing in AGOA.

December 12 AGOA Renewal Boon to Apparel Sector
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5. In visits to five apparel factories in the Export Processing
Zones, AUSTR Liser saw the tangible benefit of AGOA: thousands of
jobs. Most operators shared Hargreaves' enthusiasm that
Madagascar's apparel sector would rebound sharply in 2007. Having
peaked in 2004 at over 110,000 jobs and about USD 400 million in
AGOA apparel exports, the sector had declined in 2005 and 2006
(septel). However, spare capacity, expertise, and ample labor
supply will allow factories to scale up quickly in response to
buyers' orders.


6. The Minister of Trade, the President's Chief of Staff, and every
factory manager thanked AUSTR Liser for successfully pushing the
AGOA extension through Congress. They appreciate that although AGOA
apparel represents just two percent of U.S. clothing imports, the
benefits of the trade preference must be thoroughly explained to
lawmakers.

Not Just Clothing
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7. AUSTR Liser also met investors and partners pursuing products to
diversify Madagascar's AGOA exports, including: gourmet rice,
shrimps, essential oils, and processed agricultural products. A
common theme for all sectors was finding niches based on quality.


8. The pending gourmet rice deal with U.S. importer Lotus Foods is
a powerful demonstration of the continuity and effectiveness of U.S.
development strategy in Madagascar. Starting over a decade ago,
USAID (via Landscape Development Interventions) created farming
cooperatives and established agricultural extension centers to
target dual goals of ending slash-and-burn practices and increasing
rural incomes. The subsequent USAID Business and Market Expansion
project stands on LDI's shoulders, helping cultivators diversify and
find financing and markets. Building on this sturdy foundation, the
Millennium Challenge Compact is facilitating Lotus Foods' contact
with the Kolo Harena farmer's association. The final piece of the
puzzle, dependable market access, has been guaranteed by AGOA for
the last five years and is now maintained for several growing
seasons to come. In this way, conservation, production and trade
capacity, finance, and market access combine to reduce poverty.

Key Challenge: Inadequate Shipping Service

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9. Andry Ralijaona at the Presidency, a former shipping executive,
and every factory manager, identified shipping costs and lead times
as a key challenge to Madagascar's competitiveness in delivering
apparel to the U.S. market. Major shipping lines like Maersk and
P&O Nedloyd call infrequently at Madagascar's Port of Tamatave.
Exported containers must be transshipped at least once, usually in
Oman or South Africa, before crossing the Atlantic - taking 30 days
to the East coast and 45 days to the West Coast. Nova Knits, maker
of fine cashmere sweaters, often fills orders by air freight at
great expense to meet deadlines. Importing raw materials like yarn
and fabric to the Export Processing Zone also wastes time; a
Madagascar-bound container from China arrives in up to 30 days,
compared to only 10 days for nearby Mauritius and Sri Lanka.


10. Our contacts agreed with AUSTR Liser's point that producers
across the region should cooperate to improve their bargaining power
with shippers. They welcomed the AUSTR's offer to encourage the
shipping majors to expand service to Africa, both to nurture a
growing market and support AGOA's objective of poverty reduction.
Our contacts in Madagascar, representing suppliers in the number
three non-oil AGOA country, understand well that although a tiny
proportion of world shipments, AGOA apparel represents over half a
million jobs in Africa.

Comment:
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11. AUSTR Liser's visit offered tremendous encouragement to trade
policymakers and operators, reinforcing American commitment to
market access for African development. She also educated her
interlocutors on the need for diversification, opportunities for
capacity-building assistance, and strategies to attract investment.
With a half-decade of democratic stability, consistent donor
support, and slow economic reforms, Madagascar may be positioned to
embark on a period of accelerated growth. President Ravalomanana
and his senior team must act quickly to facilitate foreign
investments, focus on job creation, and increase exports. AUSTR
Liser suggested several necessary steps; with the continued support
of the Competitiveness Hubs, the Mission will work with our Malagasy
counterparts to follow through. END COMMENT.

SIBLEY