Identifier
Created
Classification
Origin
09ANTANANARIVO512
2009-07-09 12:35:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Antananarivo
Cable title:  

MADAGASCAR: GARMENT MAKERS SHOUT FOR AGOA ASSURANCES AS

Tags:  ETRD AGOA EINV ECON MA 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHAN #0512/01 1901235
ZNR UUUUU ZZH
R 091235Z JUL 09
FM AMEMBASSY ANTANANARIVO
TO RUEHC/SECSTATE WASHDC 2643
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS ANTANANARIVO 000512 

SENSITIVE
SIPDIS

STATE FOR AF/EPS AND AF/E - MBEYZEROV
DOC FOR BECKY ERKUL - DESK OFFICER
STATE PLEASE PASS TO AUSTR FLORIE LISER AND BILL JACKSON
TREASURY FOR FRANCOIS BOYE

E.O. 12958: N/A
TAGS: ETRD AGOA EINV ECON MA
SUBJECT: MADAGASCAR: GARMENT MAKERS SHOUT FOR AGOA ASSURANCES AS
ORDERS DECLINE

REF: A) ANTANANARIVO 451 B) ANTANANARIVO 494

UNCLAS ANTANANARIVO 000512

SENSITIVE
SIPDIS

STATE FOR AF/EPS AND AF/E - MBEYZEROV
DOC FOR BECKY ERKUL - DESK OFFICER
STATE PLEASE PASS TO AUSTR FLORIE LISER AND BILL JACKSON
TREASURY FOR FRANCOIS BOYE

E.O. 12958: N/A
TAGS: ETRD AGOA EINV ECON MA
SUBJECT: MADAGASCAR: GARMENT MAKERS SHOUT FOR AGOA ASSURANCES AS
ORDERS DECLINE

REF: A) ANTANANARIVO 451 B) ANTANANARIVO 494


1. (SBU) Summary: Madagascar's garment industry is suffering the
effects of the political crisis that began in January and is already
showing signs of further collapse due to the uncertainty of AGOA
renewal at the end of the year. Commercial chambers and businesses
have successfully educated members of the transition authority (HAT)
and other key political actors on the high stakes to be lost - tens
of thousands of jobs -- if Madagascar fails to show continual
progress towards establishing the rule of law by year-end. These
political leaders have responded with efforts aimed at showing they
understand the importance of AGOA, but unfortunately, they haven't
delivered any progress yet on the road to returning to
constitutional order. Some local chambers and businesses plan to
attend the AGOA Forum in Nairobi August 4-6 to raise awareness of
Madagascar's plight among fellow AGOA nations and the USG. End
summary.

Garment Exports Decline
--------------

2. (SBU) Madagascar garment exports to the U.S. under the African
Growth and Opportunity Act (AGOA) were 26 percent lower in May 2009
than in May 2008. Exports from January through May 2009 were 15.6
percent lower than in the same period of 2008. Garment
manufacturers are screaming for assurances that AGOA will be
extended, as they see their orders steadily decline. While some are
actively moving production and equipment offshore, most remain in
wait-and-see mode, pending a clearer sense later this year of what
the interagency recommendation to the President will be. Most have
orders already through September; the impact of AGOA uncertainty
will be strong, however, beginning in the last quarter of the year,
while a loss of AGOA would be devastating in 2010 as most businesses
would significantly downsize or close their operations. Following
is a discussion of business' and the HAT's strategies for saving
AGOA, along with a synopsis of the status of the companies with U.S.
investment and the other main suppliers.

AGOA Forum in Nairobi

--------------

3. (SBU) The presidents of AMCHAM and the Export Processing Zone
(EPZ) Association, along with representatives of affected businesses
plan to attend the AGOA Forum in Nairobi August 4-6. The HAT itself
is not invited. AMCHAM would like to present a petition to
Secretary Clinton that already has been signed by thousands of
Malagasy workers pleading for the maintenance of AGOA benefits.
[Note: We have encouraged AMCHAM to focus its lobbying efforts
solely on the Malagasy authorities, but it is becoming increasingly
desperate and is now seeking to attack the problem from all angles.
End note.] The Corporate Council on Africa may host a side session
on Madagascar during the forum to provide interested businesses an
opportunity to voice their concerns.

HAT's Response to AGOA Threat and Business Pressures
--------------

4. (SBU) On June 12, AMCHAM and the EPZ Association met with the
HAT's economic commission to urge them to seek a political solution
soon to save AGOA. The EPZ Association has raised the issue with
many HAT ministers, as well as members of the four movements
involved in the SADC/AU/UN negotiation process (ref A). On June 19,
the seven vice presidents of the HAT signed a letter to President
Obama announcing the creation of a technical commission composed of
HAT and business representatives to discuss the importance of AGOA
and stating that they have the political will to return Madagascar
to constitutionality and to strengthen the rule of law (ref B). In
early July, AMCHAM and the EPZ, in conjunction with the various
unions, began a campaign to gather workers' names on a petition to
be presented to each of the four Malagasy political movements
involved in the negotiation process. Although these chambers have
succeeded in raising awareness of AGOA among Malagasy political
actors, unfortunately these actors have yet to deliver progress
towards re-establishing constitutional order: a consensual
transition government capable of scheduling and organizing
legitimate legislative and presidential elections is not yet in
place, nor is there agreement yet on its shape or timetable.

Firms with U.S. Investment
--------------

5. (SBU) MKLEN (owned by Jordache) (produced 16% of AGOA exports to
the US from Madagascar in May): MKLEN has orders up until October
and may be in the clear until the end of the year. Its
Vice-President has personally lobbied the Ambassador and appears
quite concerned about losing its Malagasy investment worth over USD

30 million. They are reluctant to take orders for post year-end and
risk paying the duty. However, MKLEN is in a more favorable
position than most of the other factories here because 1) Jordache
has its own distribution network in the U.S. so they sell directly
to Jordache, which is less gun-shy than other buyers and 2) the duty
on their main product -- jeans -- is around 15 percent, whereas the
duty on synthetics - the focus of many Malagasy factories -- is
around 30 percent. According to the manager, their margins are less
than 15 percent, so if AGOA were cancelled, they would assume a net
loss. If there is no indication of AGOA being retained in the next
two months, they will rethink their 2010 strategy. They have over
USD 30 million in assets at risk, as well as 4,000 jobs. If they
were to relocate, they wouldn't stay in the AGOA area. According to
the manager, Jordache can source from Bangladesh more cheaply even
with the duty.


6. (SBU) Mazava (3.4% of AGOA exports in May): Mazava is partially
U.S.-owned with investment from the company Winds. Mazava is
opening a new factory in Tanzania, rather than Madagascar. The
company also has a factory in Mauritius. If there is no
announcement concerning AGOA renewal by the end of July, they will
reduce their Madagascar operations by half to assuage their
concerned customers. If AGOA is cancelled, they will move most of
their Madagascar business to Tanzania or Mauritius.


7. (SBU) Cottonline (4% of AGOA exports in May): Cottonline is an
American joint-venture with investment from Martin Trust that
employs 1,850 workers. It exports 40% to the U.S., with the
remainder to the EU and SADC countries. The company estimates an
almost 30 percent reduction in its production for June - August

2009. It has not yet received orders for September - November.
According to factory manager Michael Appadoo, they will downsize,
and potentially close, if AGOA and the US market are lost.


8. (SBU) Nova Knits: Nova Knits is American-owned. They are
awaiting the AGOA eligibility decision later this year and will lay
off workers at that time if the decision is negative.

Other Main Exporters
--------------

9. (SBU) Prime View (15.5% of AGOA exports in May): Prime View
exports 100 percent of their garments to the U.S. market. Their
orders from the U.S. have already begun declining, and if AGOA is
not extended, they will relocate to another country, according to
the manager Mr. Li.


10. (SBU) Kwok Hing (7.8%) and Kam Hing (2.9% of AGOA exports in
May): They have not yet made any decisions on downsizing or
relocating, but believe most companies will do so if AGOA is
suspended. Their buyers are pushing them to guarantee that they
will pay any duties imposed if AGOA is suspended.


11. (SBU) Grove (7.7% of AGOA exports in May): Grove exports 100% to
the U.S. They have orders confirmed through the third quarter, but
not until the end of the year. They have no plans to close at this
time, but if Madagascar is suspended from AGOA, the company will
close and fire all workers.


12. (SBU) Ariva (6.7%): Their buyers have lost confidence in
Madagascar due to repetition of political crises. Prior to the
crisis, the company planned to enlarge its operations and aimed to
work with Mazava, Puma, and Adidas, but their plans were cancelled
due to the crisis. They have reduced their number of workers by
half. They have also been plagued by corruption at customs since
the change of government. If AGOA is suspended they will further
downsize and likely close.


13. (SBU) Glory (6.5%): Between May and December 2008, the company
laid off 700 workers. Between January and mid-May 2009, they
received some orders and recruited 150 new employees, who have
subsequently been laid off. They were the subject of an audit at
the beginning of July by their buyer in New York. Ongoing
operations are subject to the outcome of the audit, expected in
mid-July, but as they have no orders currently they will almost
certainly close soon.


14. (SBU) Griffy (5%): They have orders only through August. They
employ 2,600 workers and have no plans to reduce the work force or
shut down at this time, but they have eliminated overtime work. As
their orders are all from the U.S., if AGOA is suspended they will
be forced to close. They are also concerned about the possibility
of a strike or port closure affecting their shipments.


Comment
--------------

15. (SBU) Based on our soundings, the loss of AGOA eligibility will
lead to the closure of many of Madagascar's garment manufacturers,
and the subsequent unemployment of tens of thousands of Malagasy
workers in the capital area. There are no other formal sector jobs
on hand to absorb this excess labor; reliable government statistics
are not available, but a reasonable estimate puts urban unemployment
rates already at over 30 percent. A large uptick in urban
unemployment would further destabilize the political situation,
exacerbate a humanitarian crisis that is already evident, and worsen
rising crime levels in a country where the average worker's margins
are already very thin. The impact on US-Malagasy bilateral
relations will also be significant, notwithstanding our ongoing
efforts to put the blame for this crisis where it belongs.

MARQUARDT