AGOA SHIPMENTS IN FIRST QUARTER 2009 - MADAGASCAR

UNCLAS ANTANANARIVO 000345

DEPARTMENT FOR AF/E - MBEYZEROV
DOC FOR DESK OFFICER - BERKUL
TREASURY FOR FBOYE
STATE PLEASE PASS TO AUSTR FLORIE LISER AND TO PATRICK COLEMAN

SIPDIS

E.O. 12958: N/A
TAGS: ETRD AGOA EINV ECON MA
SUBJECT: AGOA SHIPMENTS IN FIRST QUARTER 2009 - MADAGASCAR

REF: 08 ANTANANARIVO 608


1. SUMMARY: Madagascar's AGOA apparel exports in the first quarter
of 2009 increased by 6 percent compared to the same period in 2008.
However, this trend will likely be reversed in April and May due to
the current political and economic crisis, and the consequent
departure of the GAP group, which accounted for almost USD 3.5
million in 2008. END SUMMARY.

GOOD PERFORMANCE, BUT SIGNS OF TROUBLE
--------------

2. During the first quarter of 2009, Madagascar's AGOA apparel
exports grew to USD 52.9 million versus USD 49.8 million during the
same period in 2008, and USD 47.6 million in 2007. This positive
trend is primarily due to the performance of four companies: Kam
Hing, M. Klen, Prime View, and Grove, which exported a total of USD
35 million during this period. Around 30 exporters shipped under
AGOA in 2008, but this number has decreased to a current average of
26 to 28 exporters per month. According to the Malagasy customs
service, no AGOA firms have closed yet, although several firms
exporting to Europe have been forced to do so due to ongoing
political unrest and reduced demand in their target markets.


3. In mid April, a representative from the GAP Group informed Post
that they would no longer purchase apparel from Madagascar because
of the frequent delays caused by political turmoil. In 2008, GAP
Group purchases from five firms amounted to USD 3,449,021, somewhat
lower than their 2006-2007 imports from 10 firms valued at over USD
15 million. Since the end of the multi-fiber agreement in 2005,
which restricted their ability to purchase materials from China, GAP
Group had already begun restructuring their operations in
Madagascar, and moving some production elsewhere, including nearby
Mauritius. At present, two companies (Kam Hing and Cosmos)
represent more than 90 percent of GAP's shipments, and will thus be
most affected by their withdrawal. As GAP is a well-known brand
name, its departure will be a negative signal for Malagasy firms in
the U.S. apparel market.


4. The Malagasy customs service reports that since February 2009,
several companies have re-exported part of their fabrics,
accessories and equipment to their head offices based in China or
Hong Kong. MAZAVA Company, an American firm specializing in
sportswear, announced that it will continue expanding in Mauritius
instead of Madagascar due to the political situation.

THREAT TO AGOA INELIGIBILITY
--------------

5. COMMENT: Since the recent USTR warning on Madagascar's possible
AGOA ineligibility, many companies have expressed their concerns to
the Embassy and to the transition government. The association of
EPZ firms (GEFP) has been actively lobbying the transition
government concerning the consequences of continued instability, and
hope to strengthen their case following their recent trip to
Washington, DC. GEFP operators indicate that if Madagascar loses
AGOA eligibility, orders will likely stop coming in around August,
and production will wind down in the months to December. While it
is clear that some elements of the transition government are aware
of these consequences, there has been no indication to date that the
government will engage on this issue.

MARQUARDT