Identifier
Created
Classification
Origin
09ANTANANARIVO784
2009-11-17 13:13:00
UNCLASSIFIED
Embassy Antananarivo
Cable title:  

MADAGASCAR: AGOA PRODUCTION CONTINUES PENDING ELIGIBILITY

Tags:  AGOA ECON EAID EAGR ETRD PHUM MA 
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O 171313Z NOV 09
FM AMEMBASSY ANTANANARIVO
TO SECSTATE WASHDC IMMEDIATE 3025
DEPT OF COMMERCE WASHDC IMMEDIATE
DEPT OF TREASURY WASHDC IMMEDIATE
DEPT OF AGRICULTURE WASHDC IMMEDIATE
NSC WASHDC IMMEDIATE
DEPT OF LABOR WASHDC IMMEDIATE
UNCLAS ANTANANARIVO 000784 


STATE FOR AF/E - MBEYZEROV
STATE FOR AF/EPS - GMALLORY
STATE FOR EEB/TPP/BTA - AHOLMAN AND JWADELTON
STATE PLEASE PASS TO USTR FOR CHAMILTON AND WJACKSON
DEPT OF COMMERCE FOR RTELCHIN AND KBOYD
TREASURY FOR FBOYE AND AIERONIMO

E.O. 12958: N/A
TAGS: AGOA ECON EAID EAGR ETRD PHUM MA
SUBJECT: MADAGASCAR: AGOA PRODUCTION CONTINUES PENDING ELIGIBILITY
DECISION

UNCLAS ANTANANARIVO 000784


STATE FOR AF/E - MBEYZEROV
STATE FOR AF/EPS - GMALLORY
STATE FOR EEB/TPP/BTA - AHOLMAN AND JWADELTON
STATE PLEASE PASS TO USTR FOR CHAMILTON AND WJACKSON
DEPT OF COMMERCE FOR RTELCHIN AND KBOYD
TREASURY FOR FBOYE AND AIERONIMO

E.O. 12958: N/A
TAGS: AGOA ECON EAID EAGR ETRD PHUM MA
SUBJECT: MADAGASCAR: AGOA PRODUCTION CONTINUES PENDING ELIGIBILITY
DECISION


1. (U) SUMMARY: The approximately forty garment factories that are
producing clothing in Madagascar for export to the U.S. under the
terms of the African Growth and Opportunity Act (AGOA) have reduced
production and workforce by an estimated 15 to 20 percent since the
coup last March, but only one factory has closed thus far. One
additional factory is considering closing in December due to a
variety of factors. Most plan to increase production again if AGOA
is maintained and many, particularly those focused solely on the
U.S. market, plan to close if it is not. END SUMMARY.


Overall State of the Sector
--------------


2. (U) During 2008, there were 48 companies that exported garments
from Madagascar to the U.S. under AGOA. Several export only during
particular seasons. This number has not significantly changed; for
example, for the month of September 2008, 30 companies exported
under AGOA, while in September 2009, 31 companies did.


3. (U) For the first three quarters of 2009, AGOA exports were down
13 percent compared to the same time period in 2008 (USD 164 million
versus USD 189 million). However, exports in Sept 2009 were
actually 15 percent higher than those of Sept 2008. Export figures
are not yet available for November, but overall production is down
by an estimated fifteen to twenty percent.


Main American Investments Continue At Full Speed
--------------


4. (U) MKLEN/Jordache accounted for 46 percent of AGOA exports in
Sept 2009. MKLEN closed its factory in Antsirabe, which employed
1,200 workers, in May 2009. The local manager of the company told
Emboff Nov 12 that MKLEN had not laid off any staff from its larger
factory in Antananarivo and had full orders through the end of the
year. He said orders are low for January and February, and the
company is concerned about potential liability for duties of around
USD 1 million, but explained that the American company, which has
invested tens of millions of dollars, will await a final decision on

AGOA before altering its business plan. MKLEN now directly employs
3,200 workers and works with a sub-contractor to employ an
additional 1,000.


5. (U) Mazava, with investment from the American company Winds,
accounted for 5.4 percent of AGOA exports in Sept 2009. The manager
told Emboff November 17 that the company still employs 1,600 workers
and has not yet laid anyone off. In fact, the workers are now
working overtime in order to fill orders for January and February
before the end of the year. He expects that production will be
quite low in January and February, but will pick up again in March
if AGOA is extended. If AGOA is lost, the company, whose products
would be subject to 30 percent duties, would be forced to close its
factory. This year, Mazava decided to expand its operations in
Tanzania and Mauritius, rather than Madagascar, due to the political
crisis here.


6. (U) Cottonline, an American investment which accounted for 2.3
percent of AGOA exports in Sept 2009, told Emboff November 17 that
it continues to employ 1,850 workers and has not laid off anyone.
Around 45 percent of Cottonline's exports are to the US, with the
rest going to Europe and South Africa. If AGOA eligibility is lost,
the company will look for additional buyers in those markets, but
will likely have to reduce its staff. As of November, the factory
is in full production as this is typically a high season. They have
already taken some orders from the U.S. for January and February in
the hopes that AGOA will be maintained.


The Problem Cases
--------------


7. (U) Nova Knits, owned by an American citizen, told Emboff
November 17 that it had reduced its production by 50 percent and
dismissed permanently a large percentage of its workforce. (Other
sources in the sector reported that Nova had in fact ceased
operations and may permanently close soon.) According to Nova,
however, the company will increase production again if AGOA is
maintained. Grove, which accounted for 1.7 percent of AGOA exports
in Sept 2009, has laid off approximately 50 percent of its
workforce, but still employs 1,100 workers. Prime View, which
accounted for 2 percent of AGOA production in Sept 2009, possibly
plans to close in December due to a fire in the factory earlier this
year and the global slowdown which has impacted demand for its
products. They have already reduced production by 50 percent and
plan to dismiss 2,500 workers in December. If AGOA eligibility is
revoked, both Grove and Prime View plan to close.


8. (U) Comment: Although the uncertainty related to AGOA renewal, as
well as the dual international financial and local political crises,
have already had an impact on Madagascar's garment sector, most
companies continue to produce and remain in wait-and-see mode. If a
definitive decision is made to suspend AGOA for 2010, those
companies that are producing solely for the U.S. market will close
their doors. However, the vast majority of the sector's workforce
is still in place and companies are ready to increase production to
prior levels if AGOA is renewed and global demand strengthens. End
comment.


MARQUARDT